Buying gold can serve several purposes. It can be a hedge against inflation and, if you get your timing right, it can provide you with a very high return on your investment. During the two-year period from August 2009 to August 2011, the price of gold almost doubled from US$955 to US$1,813 per ounce. Of course, you may not find it possible to time the market perfectly, and to enter and exit at exactly the correct moments.
But making gold a part of your investment portfolio can help in another very important way. It provides you with an opportunity to diversify and lower the level of risk that you are exposed to. The distinctive qualities of gold as an asset class make it especially effective as a diversification tool.
When the stock market goes down, you can expect the price of gold to rise. Similarly, at times of political and economic uncertainty, investors often flock to gold as it is widely seen as a “safe haven” asset. The increase in demand leads to higher prices and can help stabilise the value of your portfolio during tumultuous times in the market.
Many financial advisors recommend that investors maintain about 5% to 10% of their portfolio in gold. Here we explore the different ways in which you can make an investment in this precious metal.