Wars have been fought over it, weddings have been sanctified by it, and it is the original form of currency, what is it? GOLD!

Gold is respected throughout the world for its value and rich history, which has been imbedded into cultures for thousands of years. Unlike fiat currency, coins or other assets, gold has maintained its value throughout the ages. Investors view gold as a way to protect, preserve and profit their hard earned dollars. Gold has also been proven as a way to pass wealth from one generation to the next. Below are four reasons why you should own gold.

1. Weakness in the U.S Dollar

The U.S. dollar is one of the world’s most important reserve currencies, when the value of the dollar falls against other currencies investors look to gold to protect them while there is uncertainty with the U.S Dollar. For example between 1998 and 2008 the price of gold nearly tripled, reaching the $1,000-an-ounce price tag in early 2008 and nearly doubling between 2008 and 2012, and reaching the $1900 level which was an all-time high. The decline in the U.S. dollar occurred for a number of reasons, including the country’s large budget and trade deficits and a large increase in the money supply.

2. Inflation/Deflation

Gold has historically been an excellent insurance against inflation, because the value of gold tends to rise when the cost of goods and services are costing us more. Gold prices have skyrocketed during years of high inflation while the stock market has plunged. Now deflation on the other hand is a period in which prices decrease, the economy slows down and the country is burdened by excessive debt. During those deflationary times the relative purchasing power of gold soared while other prices dropped sharply.

3. Geopolitical Uncertainty

Gold has been known as a go to investment during times of geopolitical uncertainty or crisis. Gold has shown to help investors protect their assets during times of geopolitical uncertainty because people flee to its safety when world tensions rise. More times than not, gold often outperforms other investments. For example, gold prices experienced some major price movements this year in response to the crisis occurring in the European Union. Its price will often rise the most when there is a weakening in the confidence of governments.

4. Portfolio Diversification

Investing is like a big pie, the more slices you have in that pie the more diversified your portfolio. Adding gold to your portfolio is a key to well balanced portfolio. Gold is an investment that is not closely correlated to other and it historically has had an inverse relationship with stocks and other financial instruments. For example, recent history shows us:

  • The 1970s was great for gold, but terrible for stocks.
  • The 1980s and 1990s were wonderful for stocks, but horrible for gold.
  • 2008 saw stocks drop substantially as consumers migrated to gold.

At the end of the day, gold should play an important part of a well-diversified investment portfolio because its value goes up when events occur that in turn cause the value of paper investments, such as stocks and bonds, to decline. Although the price of gold can sometimes be volatile in the short term, it has always maintained its value over the long term. Through the years, it has served as a hedge against inflation and the erosion of major currencies, and thus is an investment well worth considering.