7 Reasons Why Gold is Still the Best Safe Haven Asset
Gold has held the title of the world’s best safe haven asset for generations. Along with other precious metals like platinum and silver, gold tends to perform quite well during times of economic turmoil. Ultimately, this is exactly what you want out of a solid safe haven asset.
A safe haven asset is an investment that generally retains – or gains – value during troubling economic climates. In other words, a good safe haven asset can shield your portfolio from the effects of a bear market, high inflation rates, and other symptoms of economic downturn.
Despite thousands of years on the throne, some analysts contend that gold isn’t the safe haven asset it used to be.
We see things differently. There’s a reason gold remains the go-to for investors looking to safeguard their investments against economic downturn. To us, gold is still the best safe haven asset.
We’re willing to back that claim, too! Today, we’re walking readers through 8 reasons why gold is still the best safe haven asset for investors.
What is a Safe Haven Asset?
Safe haven assets are traditionally used as a way for investors to protect themselves against financial crises. When the stock market faces a serious downturn, assets like stocks and bonds may quickly depreciate in value.
But if investors put all of their money into stocks and bonds, how do they avoid losing everything when the market falls deep into the red? The answer is that smart investors diversify their portfolios with non-correlated assets.
These assets are not moved by the same forces that dictate values in the traditional financial sector. In some cases, safe haven assets like gold can actually gain value when the stock market takes a dive.
What Makes Gold the Perfect Safe Haven Asset?
Gold is still the best safe haven asset for a few different reasons, including its intrinsic value, history, and the important role it plays in diversifying investor portfolios.
Non-Correlated Assets: A Crash Course
Non-correlated assets are often considered safe havens. When an asset is non-correlated, this means that its price doesn’t move in response to the same economic signals that move the traditional market.
To really understand safe haven assets, you need a bit more information about correlation. Correlation refers to the relationship between one asset and another. Traditionally correlated assets are closely linked in value to the overall health of the market – as well as the economy.
By contrast, gold is still the best safe haven asset because it usually moves opposite to the traditional economic signals that drive movements in the rest of the investment market.
7 Reasons Why Gold is Still the Best Safe Haven Asset
Like we mentioned earlier, we tend to disagree with analysts who argue that gold is no longer a contender for the world’s most effective safe haven asset.
To the contrary, gold’s qualities mean that gold is still the best safe haven asset that investors can add to their portfolios.
Don’t worry – we’ll show our work. Read on for our list of the top 7 reasons why gold is still the best safe asset around.
1. Intrinsic Value
Gold has intrinsic value. For the uninitiated, intrinsic value means that a commodity can’t become worthless. Even the best performing stocks from the most profitable companies can potentially go so deep into the red that they become worth nothing.
This isn’t the case for gold. Since the metal is intrinsically valuable, gold will never be genuinely worthless.
In fact, gold’s floor is extremely high. Because the metal is so scarce, it’s hard to imagine gold ever dipping below $1,000 again. Instead, gold’s historical price trajectory suggests that the precious metal will only become more valuable as time goes on.
What Makes Gold Intrinsically Valuable?
Gold bullion is more than just rare. When an object is rare, this means that there isn’t very much of it around. Gold is considered scarce, which means that it’s both rare and in high demand. In other words, there’s never quite enough gold available to meet the needs of the market.
The result is that gold has both intrinsic and demand-based value. Gold’s price floor is extremely high because of its rarity, usefulness, and beauty. But its ceiling is even higher since gold is so scarce and constantly in-demand.
2. Inflation Safeguard
Perhaps gold’s biggest benefit is its role as a safeguard against inflation. Some investment experts claim that gold is inflation proof. This isn’t always the case. Sometimes, gold’s value is unchanged or decreases during periods of inflation.
But for the vast majority of history, gold has proven itself an excellent safe haven asset for investors looking to protect their assets from inflation.
Is Gold Affected by Inflation?
During times of inflation, the value of the United States Dollar decreases. This isn’t great for most portfolios. But for gold stackers, inflation is almost always a good sign. Gold’s intrinsic value means that it’s generally unaffected by inflation – and deflation. This is another big reason why gold is still the best safe haven asset to invest in.
3. Diversification
All precious metals play a very important role in a solid portfolio: diversification. If you’ve been investing for any length of time, you probably already know how essential it is to diversify your collection of assets.
Gold is a great way to diversify your portfolio. When you diversify, your goal is to find assets with a number of different correlations.
One simple way to think about diversification: you never want to put all of your eggs in one basket. If all of your money is on oil stocks, you’ll take a massive hit if the global demand for oil/gas decreases.
But if you mix in non-correlated assets like gold into your portfolio, you’ll remain profitable – even if some of your stocks become nearly worthless.
Gold: The King of Diversification
Gold is still the best safe haven asset because of how well it lends itself to diversification. Gold’s intrinsic value, its role as a bulwark against inflation, and its perpetually high demand make it a fantastic choice if you want a wide, varied selection of assets in your portfolio.
4. Numismatics
Numismatics is the study of what gives coins collectable value. Gold coins and bars often have numismatic value, especially if they’re old, rare, or beautiful. Even modern gold bullion coins like the American Gold Eagle can become more valuable to collectors over time.
Collecting numismatic assets can be a great way to diversify and expand your investment portfolio. Gold is one of the world’s best safe haven assets because beautiful gold products tend to increase in value over time – even if traditional assets become cheaper.
Of course, gold isn’t the only numismatic investment that smart collectors add to their portfolios. Other precious metals can play the same role. Additionally, even highly non-traditional investments like art can have high numismatic value.
Still, there’s a reason gold is still the preferred safe haven asset of investors around the world. Putting your money into rare gold coins and bars can pay dividends over time. Aside from the natural appreciation of the value of gold, these numismatic investments also gain value as investor demand for these rarities increases.
Why is Numismatics Important?
Numismatic investments add a new dimension to your portfolio diversification efforts. With traditional non-correlated assets, you’re able to maintain profitability during otherwise bleak times in the overall economy.
When you build some numismatic value into your portfolio using gold coins and bars, you can actually gain more profit over time. In a sense, numismatic gold can shield your portfolio from even the worst bear markets in the precious metals market.
If the value of gold per troy ounce goes down by $100, most gold investors will lose $100 in value per ounce of gold in their portfolios. But if your 1 oz rare gold coin becomes more valuable by $150, you actually made money while most other investors sank into the red.
5. Historical Demand
Another reason gold is still the best safe haven asset has a lot to do with the precious metal’s extensive history of high demand. In simpler terms: people have loved gold for thousands of years.
Gold as a safe haven investment isn’t a new concept. Even the Ancient Egyptians and Romans knew that gold bullion is a fantastic way to store – and display – wealth. While gold’s reputation as a safe haven asset really peaked with the metal’s price run in the 20th century, the metal has always been considered an unparalleled asset and status symbol.
A brief survey of the history of gold coins demonstrates the precious metal’s role as a premier safe haven asset. There’s a reason, after all, why investment moguls have filled their portfolios with gold for decades.
Gold: The World’s Oldest Safe Haven Asset
This historical demand helps make gold one of the world’s most consistently valuable safe haven assets. The simple fact is that gold will always be one of the most coveted commodities in the world. Since gold will never really go out of style, it makes sense why so many investors consider it the gold standard for safe haven investing.
When it comes to choosing the right safe haven asset to protect your portfolio from inflation and other negative economic symbols, it’s hard to beat gold. Centuries of gold bullion coins and bars have made the metal one of the best possible options if you’re looking for a way to beat a bear market.
6. Crisis-Proof
Gold is still the best safe haven asset in part due to its ability to survive financial crises. Even during the mass Occupy Wall Street protests in 2011, gold didn’t just survive – it thrived.
This is a consistent trend throughout the history of gold. If you take a look at some of the popular gold forums on the internet, you’ll find that crisis preparation is actually a big reason why people invest in gold.
As a premier safe haven asset, gold tends to be the go-to for investors who are worried about international crisis, recession, or conflict.
Gold Prices and Global Crisis
Gold price charts suggest that the metal’s biggest price movements tend to happen when the world sits on the brink of international crisis. This makes quite a bit of sense if you think about it. Since gold increases in value during times of crisis, demand for the metal will naturally increase if investors are scared of some sort of disruptive international event.
7. Institutional Backing
For us to truly back a safe haven asset, we like to see some degree of institutional backing. In other words, investors need to know that some of the world’s most brilliant economic minds are also putting their money on gold bullion.
Financial advisors and institutions all over the world recommend adding some gold bullion to your portfolio.
The precise amount of gold you should own depends on who you ask. Most investment experts advocate putting around 10 percent of your portfolio into precious metals like gold. Younger investors might bet less on gold and invest more money into riskier, high yield stocks. If you’re older, it might make sense to bet heavy on the consistent, relatively low yield gold market.
The World’s Biggest Investors Bet on Gold
Hundreds of the world’s most prolific and wealthy investors bet on gold – and with good reason. Even a portfolio worth ten billion dollars can benefit from gold’s function as a safe haven asset. While our readers probably don’t have a billion bucks to spend on gold coins and bars, the same logic applies.
Final Thoughts: Gold is Still the Best Safe Haven Asset for Investors
Contrary to the claims of some investment analysts, we believe gold is still the best safe haven investment on the market. For thousands of years, gold has built itself a reputation as the best way to safeguard your money against inflation, crisis, and global conflict.
Are you ready to start adding gold bullion to your growing investment portfolio? Contact us anytime for personalized advice and guidance.
You might also be interested in:
About The Author
Michael Roets
Michael Roets is a writer and journalist for Hero Bullion. His work explores precious metals news, guides, and commentary.