The United States came off the gold standard, backing the national currency decades ago. The government now backs the American dollar instead of gold reserves, but gold continues to be an investment that people use as a financial asset. There are many reasons why gold matters even in a digital age where cryptocurrencies are coming into form and adding to the many financial assets people can own.
Gold proves attractive to many investors, and a part of that is just the tradition of it. Gold has been used as a currency or financial medium for thousands of years. Civilizations had traded it as currency or part of their barter systems on many continents long before the United States was even formed. It was actually going on long before European settlers discovered North America.
Gold is commonly used as a hedge in a broader portfolio. While its value can be volatile and go up and down, it tends to do really well during times of inflation. People who invest in gold can also use it as a hedge against economic uncertainty. The values of gold tend to go up strongly during economic recessions. A portfolio that invests in gold can usually have a source of growth even if stocks and bonds are all turning south.
Investors have many options for investing in gold, be it bars or bullion. There are even IRS tax havens that can be set up for retirement benefits.
Gold is classified as a commodity, specifically as a precious metal. Other precious metals that investors might consider similar to gold would include silver, palladium, and platinum.
An investor looking to truly diversify their portfolio should put at least 5 percent of their overall investment fund into gold or other precious metals. Many financial advisors recommend going no more than 15 percent overall. Anything more would risk unbalancing the portfolio overall. Gold is best used as a hedge that acts as a counterweight to the stock market but should not be used in lieu of it.
Investor interest in gold is possibly higher than ever, which helps drive the prices even higher. However, every recession that drives prices up never seems to create a bubble.
