The value of gold derives from its scarcity as a commodity, as well as from its long history as a stable medium of exchange. The price of gold tends to rise during economic uncertainty and when inflation is high. As a result, gold is often considered a hedge against inflation. Inflation occurs when prices rise and, in the same way, prices rise as the value of the dollar falls.
As inflation increases, so does the price of gold. The short answer is yes, gold increases in value. It has been shown to be a more stable investment than the stock market over longer periods of time and, at least, it retains its intrinsic value if it does not increase. Hopefully, you've already noticed that the value of gold increases over time, making it an excellent investment for those looking to diversify their portfolios or save for retirement.
As central banks diversify their monetary reserves from the paper currencies they have accumulated to becoming gold, the price of gold tends to rise. Some investors may choose to maintain some exposure to gold in their portfolio to diversify, as a protection against the fall in stocks and bonds. In recent years, several surveys have been conducted suggesting that millennials and Generation Z are more likely to view cryptocurrencies as a preferred investment than gold. The outlook for the price of gold will probably depend on how geopolitical tensions develop and how monetary tightening affects the world economy, among other factors.
While it may be tempting to buy shares in a gold mining company that has fallen even further from its peak, the simplest and safest way to buy gold is to opt for an exchange-traded fund (ETF), such as the SPDR Gold Shares ETF (GLD 0.09%) or the iShares Gold Trust (0.12% of the IAU). The SPDR Gold Shares ETF has an expense ratio of only 0.4%, and the iShares Gold Trust offers an even lower spending ratio of 0.25%, which is a much better and more liquid alternative to buying physical gold bars and paying a substantial premium over cash. Gold has been used throughout history for a variety of purposes: jewelry, currency, cables and even medicines. For investors looking for low-risk assets to buy now, opening an initial position on a gold ETF could be a reasonable move.
Gold retains its intrinsic value regardless of the economic climate, making it a much more stable investment than stocks and bonds. However, whether gold is the right investment for you depends on your risk tolerance, market outlook, and whether you expect it to rebound or continue to fall, among other factors. When expected or actual yields on bonds, stocks and real estate fall, interest in investing in gold can increase and drive up its price. While some ETFs represent ownership of real metal, others hold shares in mining companies instead of real gold.
By keeping cash on the sidelines or buying gold now, an investor basically claims that investing in gold is a better use of capital than a different asset. The World Gold Council lists many new uses of gold, including medical technologies and drugs, environmental advances, engineering, the aerospace industry, and other new technologies. Both ETFs are at 52-week lows and are intended to track the price of gold by keeping physical gold insured in a trust.