6 Reasons to Invest in Gold

Historically gold has played crucial roles in improving the economies of many countries during phases of inflation and financial hardships. Although gold is not used as a primary currency anymore it is still considered as a strong long term investment that is very effective in portfolio diversification.

Before 1944 gold was officially used as the world reserve currency which was replaced by Dollar after signing of the Bretton Woods agreement. One of the major reasons that make gold a reliable investment tool when compared to other modern-day investment vehicles is its ability to provide a hedge against inflation. Although USD is the major global reserve currency when the value of USD drops due to market swings and inflation people tend to flock gold which leads to an increase in the price of gold.

If you are looking for an investment that helps you to diversify your investment portfolio and provides a hedge during phases of inflation and market swings then you should definitely invest in gold. This article will shed a light on 6 reasons that make gold a reliable investment in the UAE.

Diversifies your investment portfolio

According to economists and financial advisors gold is highly effective in adding diversity to an individual’s investment portfolio. Diversity in terms of finance refers to the process of investing in different investment vehicles that are inversely related to each other. Typically mutual funds and stocks have a negative relationship with gold.

Gold combined with market-based investment vehicles like stocks and mutual funds allows investors to build a strong and diverse investment portfolio. Diversification of the portfolio helps investors to mitigate risks and volatility that might lead to financial loss.

Increasing demand for the precious metal

Within the past few decades increasing wealth of growing economies has contributed to an increase in the demand for gold. In many Asian and Gulf countries, gold is deeply interwoven into rich traditions and cultures. This is one of the major factors that allow gold to maintain its value. Dubai in the UAE is one of the largest sellers of gold worldwide. Gold promotes tourism and improves the economy of the UAE. India and China are of the leading consumers of gold globally.

During the Indian wedding seasons, there is a rapid increase in the sales of gold in India and UAE. Moreover, the Chinese buy gold bars during the Chinese New Year and consider it as an effective way of saving and accumulating wealth.

The demand for gold has increased substantially amongst investors as well. Modern-day gold-based investments like Gold bonds, gold stocks, gold ETFs allow investors to invest in gold without worrying about the issues associated with storing gold in its physical form.

High liquidity

Very often we encounter situations that require immediate financial assistance. In such cases, conventional investments like FDs, stocks, real estate are ineffective due to low levels of liquidity. Contrary to this gold is very easy to liquidate the asset and helps investors in urgent need of cash.

Liquidity refers to the ease with which an asset can be converted into cash. Gold can be converted to cash anywhere in the world based on the current gold rate in UAE. Not just the physical gold but paper-based gold investment like gold bonds and ETFs come with the same levels of liquidity. While dealing with physical gold the redemption amount is dependent on the purity of the product and current gold price in UAE. In the case of non-physical gold, the gold rate in UAE determines the amount of redemption.

Inflation Hedge

Since times immemorial gold has been an excellent tool against phases of inflation. During inflation, the price of gold tends to rise exponentially. Inflation has a negative impact on investment vehicles like mutual funds and stocks. Furthermore, the value of currency dips during inflation which prompts people to hold capital in the form of gold.

When the native currency loses its strength due to inflation, gold is priced in currency units and hence tends to rise with other commodities.

Geo-political Factors

Gold has not only managed to maintain its value during financial instability but also during geopolitical uncertainties. Economically unstable economies witness a rise in the price of gold. During phases of the commodity, crisis residents flee towards investments to safeguard themselves and their loved ones.

When political uncertainties and world tension rise people use gold as a tool to ensure financial stability and security. During such phases, gold outperforms other forms of investments and provides a hedge against instabilities.

Tangible asset

Another distinct feature of gold from other conventional investment tools is its tangibility. Investing in gold at the current gold rate in the UAE is much easier than investment options like real estate that requires a lot of paperwork.

The tangibility of gold creates a perception of safety amongst investors that increases the popularity of the particular investment tool in the market. Digital investment asset is prone to cyber-crimes and hacking and other issues, gold is free from such issues and hence considered as a safe investment vehicle not just in the UAE but globally.

Protection against Deflation

Deflation refers to the period during which the prices decrease, the business is slowed down and the economy is operating under the burden of excessive debt. During deflation, the purchasing strength of gold soars while other prices drop steeply.

Investors and residents choose to accumulate and hold cash. The most suitable way to hold cash is in the form of physical gold based on gold price in UAE that provides financial security.

Conclusion

The article encompasses various reasons why people should invest in gold. The precious metal is an integral component of a well-structured and diversified investment portfolio. Gold price in UAE increase in response to events that lead to a decrease in the value of other assets and investments.

Although the gold rate in UAE can be highly volatile in a short time horizon it has managed to maintain its value over longer periods of time. It is highly effective in providing a hedge against inflation.