Gold has always been one of those financial investment items that people have leaned on when things get bad. Most people consider gold to be an inflation hedge, and that’s partly true.
As opposed to many other investment types out there, gold is not immediately tied to the success of the American economy, or any economy for that matter. In that way, gold is most certainly a protector against inflation and the de-valuing of the US dollar. But assigning gold the label of inflation hedge might not be truly doing it justice.
Gold is much more than that, and it’s more appropriately a crisis hedge.
Gold and everlasting value
While “everlasting” might be a bit of an overstatement, gold does have sustaining value through difficult economic conditions. When you invest your money into something like a stock or a mutual fund, you are depending upon the economy to succeed.
As many have found out over the last 24 months, mutual funds that were considered safe can fail when the economy hits a rough patch. The nice thing about gold is that when the US dollar loses strength and the economy starts down a hill, gold can still sustain itself. It can provide something of value to a portfolio that has taken some hard shots.
Gold as a crisis hedge
Many people who invest in gold understand that its primary function, even more so than inflation hedging, is crisis hedging. What happens when the bottom falls out of the US economy? Business struggle, people are laid off, and stock shares mostly decline. Gold, on the other hand, sees a rise in value typically.
It has a tangible type of value that cannot be found in other investment vehicles, and this makes gold somewhat special. It is something you can sell anywhere, at anytime – an old school type of currency that has global appeal.
Using this knowledge to your advantage
When you are putting together a portfolio, you need to recognize gold’s true value and use it to your advantage. It should be known that gold has a place in every portfolio, if for nothing else but security.
When the economy starts to head south and everyone else is complaining about the sinking value of their portfolio, smart investors see their fortunes rising with the rise of gold. They have loaded up on gold mining stocks, gold ETFs, and physical gold, just so that they can ride out the down period until things get better once again.
Gold as an inflation hedge and timing
If you are going to use gold to hedge against decline the American economy, then timing is of the essence. You cannot wait until confidence is at an all-time low, since this time will likely not provide the best price entry point. The smart and savvy investors keep up with the trends and they anticipate when bad news is going to break for the economy. They are prepared and they reap the rewards of this type of preparedness.