Creativ Studio Heinemann/Getty Images
Gold has historically been an attractive investment due to the unique benefits it offers investors. Not only is the supply of gold finite, but it’s used in everything from electronics to industrial processes. And, when you add in the fact that it’s generally a low-risk asset for investors, it’s easy to see why this precious metal is so popular.
And, that trend has only grown over the past year. Gold investments have increased significantly over the last 12 months, and investor allocations to gold are now the highest they’ve been since 2012, JPMorgan Chase & Co. analysts reported this week.
But why are a growing number of investors putting their money into gold? There are a few reasons why this trend may have occurred.
Why investors are buying gold now
Investors are likely buying into gold right now for a few different reasons, including:
It’s a hedge against inflationÂ
Over the last 18 months, persistent inflation has wreaked havoc on the economy. And that has likely been a driver for the recent uptick in gold investing.
When inflation is high, the purchasing power of the dollar erodes. In turn, investors lose purchasing power because their money doesn’t go as far as it otherwise would have. But the value of gold typically increases when there’s a devaluation of traditional currency. So by adding gold to their portfolios, investors are actively hedging against inflation.
It’s a good tool for portfolio diversification
Gold is also a useful tool for portfolio diversification, which is likely adding to the increase in demand for this precious metal. That’s because gold’s price generally moves in the opposite direction of traditional investments, like stocks and bonds.
When these types of investments experience a downturn, gold acts as a counterbalance, providing stability for your portfolio. And with so many economic uncertainties on the horizon right now, it’s likely that investors are flocking to this precious metal to ensure that their wealth is protected.
It performs well in uncertain economic climates
Global geopolitical tensions and other economic issues are also a likely contributor to the uptick in gold investing. Everything from political conflicts to trade disputes can cause market volatility. This, in turn, negatively impacts traditional investments.
But gold is a physical asset with intrinsic value, and it typically performs well during periods of economic uncertainty. It acts as a safe haven for your money and is typically a valuable asset during these types of economic climates.
Gold also offers potential tax benefits
Gold investments can come with tax benefits, depending on how you’re investing, which may also be contributing to the uptick in gold investing. The tax perks can make certain types of gold investments an attractive option if you want to save for retirement while capitalizing on gold’s potential to grow in value over time.
Take, for example, the potential tax benefits that come with gold individual retirement accounts (IRAs). If you hold certain types of gold in your IRA, the gains are tax-deferred. There may be other tax benefits if you meet the criteria and take distributions in retirement.
The bottom line
There are likely a few different reasons why more investors are adding this precious metal to their portfolios right now. But no matter what the cause, the surge in gold investments underscores how valuable gold can be to your portfolio. While gold is not the sole solution for uncertain economic climates or periods of high inflation, it remains a timeless asset with the potential to shine when other investments falter.