Gold prices hit a new record high. Here are 5 reasons why investors are buying in.
There has been a lot of interest in gold investing recently — and for good reason. Not only is inflation impacting the value of the dollar, but other economic challenges, like market volatility and high rates, are causing economic uncertainties. And, during periods of economic tumult, investors tend to seek out safe investments, like gold, to add to their portfolios.
It's not just the uncertain economy that's driving the interest in gold, either. The recent gold price trends have, too. For example, after days of steady price growth, the spot price of gold hit a new high this week, climbing to $2,160 per troy ounce. That's up 8% from the previous record high of $2,135 in December 2023.
But why exactly are investors buying in right now? Below, we'll break down what you should know about why gold prices hit a new record high this week.
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Why investors are buying gold now
There are a few reasons investors are adding gold to their portfolios right now. These include:
For portfolio diversification
As market dynamics evolve, savvy investors tend to recognize the importance of portfolio diversification to mitigate risks. And, by adding safer assets to your portfolio, you can help balance the risk from more volatile investments, like stocks.
That's part of gold's allure — it tends to move conversely to the stock market, so it's a great way to diversify your portfolio. And, the recent surge in gold prices signals that there's a renewed appreciation for its role as a non-correlated asset.
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To get a reliable store of wealth
Right now, many uncertainties are impacting the economy, which may also be playing a role in the uptick in interest in gold. That's because gold has historically been recognized as a reliable store of wealth, meaning that when traditional currency loses value or fluctuates, gold's value tends to stand strong or increase.
In turn, gold is a go-to choice for people who are looking to protect their wealth when the financial world gets chaotic. And, given that we're facing numerous challenges in today's economic climate, it makes sense that some investors are now adding this precious metal to their portfolios to gain a reliable store of wealth.
To help hedge against inflation
While today's inflation rate is a lot lower than it was at its peak in mid-2022, we're still being impacted by it. The most recent inflation report, issued in January, showed that the inflation rate is at 3.1%, which is still higher than the Federal Reserve's target goal of 2% — and that may also be helping to drive the uptick in gold prices.
That's because gold can act as a natural hedge against the eroding effects of rising prices due to inflation. Unlike traditional paper currencies, which may lose value over time during periods of high inflation, gold's scarcity and historical role as a store of value help it retain or grow in value during inflationary periods.
And investors who are wary of the potential impact of inflation on their purchasing power tend to turn to gold as a safeguard to maintain the value of their assets. So with persistent inflation issues still impacting today's economy, it's likely that some of the recent gold price growth is due to investors buying in to hedge against inflation.
To protect against losses from geopolitical uncertainty
Geopolitical tensions are currently impacting the global economy, which may also be helping to push the price of gold higher. When there's uncertainty due to conflicts between countries or major political issues, investors tend to flock to gold due to its safe haven qualities. In other words, gold becomes a secure retreat for investors during periods of geopolitical uncertainty, as it works as a tangible and universally accepted form of wealth — and the increased demand during these periods helps to push the price up.
For gold's many other benefits
Apart from its role in portfolio diversification, wealth preservation and hedging against inflation and geopolitical risk, gold possesses unique qualities that make it a standout asset. For example, its intrinsic value, durability and lack of reliance on third-party obligations contribute to its timeless appeal. And, gold is not subject to the same risks as other investments, such as default or bankruptcy, making it a tangible and secure asset in uncertain times.
The bottom line
The recent surge in gold prices is likely due to a few different factors — from investors seeking diversification, wealth preservation or protection against inflation and geopolitical risks to investors simply finding solace in the simplicity and stability offered by gold. And, gold isn't just valuable in today's unusual economic climate; its uses can endure well beyond periods of uncertainty. So, if you haven't added gold to your portfolio yet, it could be worth considering right now to take advantage of the many unique benefits it offers.
