Gold as an investment, is one of the most difficult to anticipate, predict and understand assets. As a commodity, its price can vary rapidly due to events over which no one has control. So why gold should be in your portfolio? Investors use gold as an investment for different reasons. Some use the precious metal as a hedge against inflation, others as a hedge against a falling dollar and there are those who use it as a safe haven during times of political and economic turmoil.
In the opinion of many experts, gold is a good portfolio protection against a significant decline in the market or a recession, as we saw in 2002 and 2008. Therefore, an investor must keep informed about the evolution of gold prices based on technical analysis in order to be able to take the necessary decissions at the right time and make more profitable investments.
Since 2000, gold has seen a steady increase in price before reaching its peak in late 2013. More importantly, gold maintained its value during the dot.com bubble, when technology stocks reached a turning point in the Nasdaq. During this free fall, where the Nasdaq composite index lost almost 70% of its value and the S&P 500 almost 40%, gold retained its value and, in fact, increased by about 20%.
During the recession of 2008, the Nasdaq, S&P 500 and the Dow Jones fell by over 50% from October 2007 to March 9, 2008. Again, during this period of market weakness the gold continued to increase by almost 25%. This resulted in a 75% differential between gold and the major indexes.
Gold has similar strength in times of war or extreme political tension. For example, during the first Gulf War in 1990, the market fell by around 15% while gold held steady to slightly higher. When the war came to an end in February 1991, the markets and the gold value returned to levels of similar performance, but the investors who had part of their portfolio dedicated to gold enjoyed greater stability.
The easiest way to add gold to your portfolio should be buying physical gold. However, this can be logistically difficult and complicated because you have to find a way to safely store your investment. The easiest way to invest in gold is through ETFs such as the SPDR Gold Shares Trust (GLD) and iShares COMEX Gold Trust (IAU). These ETFs track the price of gold by holding gold bullions and can be traded in a exchange like regular stocks. For the average investor of medium risk appetite, gold ETFs are the simplest and easiest way to allocate a portion of their portfolio to gold.
Are you interested in gold trading? Through the following link you can access a list of brokers that offers gold trading (spot & CFD):