My take on it: why jewelry is a wise investment even the economy is in chaos.
Gold has been in wide use since ancient times, and even before then, as a symbol of power and wealth. Gold is malleable, ductile, and corrosion-resistant, making it a useful metal for jewelry. It’s still in use today as a form of currency around the world. While it can be absolutely fascinating to talk about the history of gold, I’ve taken a different tack here. I want to share with you my take on “why it is still good to buy quality jewelry even we’re in the midst of economic chaos.”
#1 Gold vs. U.S. Dollar
The U.S. dollar is one of the world’s most important reserve currencies, but when the value of the dollar falls against other currencies, it often prompts people to flock to gold, which raises gold prices. Between 1998 and 2008, gold prices nearly tripled, reaching the $1,000-an-ounce milestone in early 2008 and almost doubling between 2008 and 2012, reaching $2,000 per ounce.
#2 Inflation Hedge
Over the past 50 years, investors have seen gold prices soar and the stock market plunge during high-inflation years. This is because when fiat currency loses its purchasing power, gold tends to be priced in those currency units and thus tends to rise along with everything else. Moreover, gold is seen as a good store of value so people may be encouraged to buy gold when they believe that their local currency is losing value.
#3 Security from Deflation
Deflation is defined as a period in which prices decrease and business activity slows. Deflation has not been seen globally since the Great Depression of the 1930s. The relative purchasing power of gold rose when other prices dropped sharply during the Depression. This is because people chose to hoard cash, and the safest place to hold cash was in gold and gold coin at the time.
#4 Geopolitical Uncertainty
Gold retains its value in times of financial uncertainty as well as geopolitical uncertainty. It is often called the “crisis commodity” because people flee to it when world tensions rise, and during such times, it often outperforms other investments. For example, its price rose a lot this year in response to the crisis happening in the European Union. Its price often rises when confidence in governments is low.
#5 Portfolio Diversification
The key to diversification is finding investments that are not highly correlated. Gold has historically had a negative correlation to stocks and other financial instruments. Recent history bears this out:
- 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.
- Properly-diversified investors combine gold with stocks and bonds in a portfolio to reduce overall risk.
Gold is a solid investment that remains useful in many situations. Its value may be volatile in the short term, but so are most stock prices. Over the long term, gold maintains its value and increases as paper investments drop in value. To learn more about investing in gold, talk to our jewelry consultant.