Throughout history, people acquire and hold gold for a variety of financial reasons. For some, holding gold is a hedge against inflation, insurance against a declining U.S. dollar, and a form of protection in the light of political uncertainty. Regardless of the underlying reason for looking to precious metals, investing in gold is a way to diversity your portfolio. The recent decline in gold prices, however, highlights the volatility of the market and reiterates the need for investors to do their research, understand their capacity for risk, and remain current with the performance of their assets.

A common misunderstanding with gold is that it is correlated with the dollar: as the dollar weakens the value of gold rises. Gold is also often cited as a barometer of the strength of the overall global economy. With the recent decrease in the price of gold, investors ask themselves if this is a harbinger of tougher times ahead. The data suggests a more nuanced environment.

Ten years ago, in July 2003, gold sold at $350 an ounce. It soared upwards to a high of around $1950 an ounce in late 2011 and today has settled at $1250 an ounce. Ten years ago, gold was selling at well below its long-term inflation-adjusted average. This, combined with a growing interest in precious metal investment across the globe, created demand. With demand, prices climbed upward even as the global financial crises entered the picture.

Today, gold has decreased from its high for a number of reasons. The economies of China and India weakened; buyers from those countries scaled back their investments. Inflation in the U.S. has been held in check by governmental policies. Finally, some folks who got into the market as it soared are now backing out.

Gold investment is risky and volatile. However, it should be a component of many investors’ asset allocation strategy. Gold makes sense for many households, including middle-class families in the United States. Do your research and understand your investment needs. Recent performance is no predictor of future action; gold remains a strong option for many investors.


Source: USA Gold