You know Your Survival Guy sees gold as an inflation hedge. State Street Investment Management recently released a report on gold as an investment, and in it, the authors wrote:
Diversifying with gold to preserve wealth
Based on gold’s historical diversification and positive risk-adjusted returns during market turbulence, it has a track record of potentially helping to temper short-term volatility and limit drawdowns.
But an allocation to gold may support preserving wealth on a longer-term basis too. Its historical positive longer-term risk-adjusted returns during a variety of business cycles can help investors weather unforeseen risks and capital impairments that can erode a portfolio’s value over time (Figure 4).
Deep liquidity
Gold’s liquidity may help with wealth preservation, providing investors a relatively deep and liquid trading market that may be a key benefit of holding gold strategically. With a historical trading volume on par with major debt, currency, and equity markets, the estimated average daily turnover of gold (across exchanges, over-the-counter, ETFs, etc.) is more than US $362 billion, or US $91 trillion a year.5
Even during turbulent markets, like those experienced during March 2020, the gold market remained liquid. Gold trading volumes hit US $237 billion in March during the initial COVID-19 lockdown,6 providing investors ready access to a liquid trading market — or access to cash — when many other assets were declining in value.
Historical store of value
Longer term, gold can potentially provide a unique store of value for investors, helping to preserve purchasing power over time. Gold has kept up with rising prices by historically providing positive returns during periods of rising inflation, particularly during environments of extreme inflation.7
Additionally, gold has showcased its ability to hedge against currency debasement by historically maintaining a negative correlation to the US dollar.8 Taken together, gold’s ability to keep up with prices, in conjunction with currency depreciation, may potentially help investors maintain purchasing power and preserve value against inflationary pressures.
Gold for the long term
Investors may consider gold as both a tactical asset to be used in times of crisis and as a long-term, strategic investment with unique and diverse potential benefits.
Action Line: Read more about gold here. And click here to subscribe to my free monthly Survive & Thrive letter.
