Gold stock investments – why gold is still a buy?

Gold prices have been on a roller coaster ride for quite some time. Since the prices of gold are not directly connected with the stock market, many analysts and experts are unable to provide any insight about the price fluctuations in the stock market. That is the reason most investors shy away from gold stock investments.

Gold prices went as high as $1000 and then it has come down to current levels of $880. So this begs a question, is gold stock investments a good idea in current times? There is no straight answer for this since different stock investors have different risk appetites but we would say that gold investment is not a bad idea in current times. The reasons for our recommendations are given below:

  1. First let us understand why is it important to invest in gold? If you see any asset allocation model or tool, it would recommend having at least 5% of the portfolio in the form of commodities or precious metals. Gold is one of the precious metals which outweigh other commodities hands down.
  2. Gold stock investment acts as a hedging strategy against stock market risk. As mentioned earlier, gold prices are not driven by stock market therefore it present as a great hedging strategy against fluctuations in stock market.
  3. Another good reason is the weakening of US Dollar. Since dollar value has gone down, it is relatively cheaper to buy gold from European countries. As a trend, the value of gold increases when the dollar value decreases.
  4. Gold also proves to be a good bet against inflation. When investors realize that their money is losing value, they will start positioning their investments in a hard asset that has traditionally maintained its value.
  5. Another reason for buying gold is that the supply is not able to match up with demand of gold. The gold mines are getting depleted therefore there is less output. This increases the value of gold.
  6. Political instability in recent times also adds a risk in stock market. Gold stock investments are considered to be a safe investing haven since there are various geographical areas like Middle East, Africa etc where there is political unrest.
  7. Increase in demand of gold in countries like India and China – These countries have ever increasing demand of gold which makes it a great value. The gold jewelry is famous in India and it itself is a huge market of gold.

    There are various ways of gold stock investing – from gold bullion to gold jewelry; from gold ETFs to stocks of gold mining companies, there are a lot of options available for investment in gold. The gold companies run on a huge profit margin. Therefore it is not a bad idea to have gold stock investments in your portfolio.

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