Gold

Gold is a precious metal that is extracted from the earth in the form of gold ore. Once used as the main currency of choice in developed nations, its value reflects a strong correlation with the strength of major currencies being traded on the foreign exchange market. 

Gold cannot be diluted and has a rich history of retaining value far better than other forms of currency. Due to its limited supply, during times of significant inflation, the demand for this commodity generally results in an appreciation of its value. 

gold-commodity
Gold is considered an ideal tool for diversifying risk given its innate ability to increase in value during times of economic uncertainty or decline. – Image Courtesy of theweek.in.

Given its intrinsic value and variable price in U.S. dollars, it is considered by many investors to be an inflationary hedge that is used to mitigate risk while protecting the value of an investment. 

The largest market movers of the gold price are central banks, which are estimated to house approximately 20% of the world’s mined gold. During times when the economy is reflecting signs of significant prosperity, central banks will scale down the volume of this commodity in possession because it fails to generate a return due to its strong correlation to inflation, also referred to as positive price elasticity. 

This precious commodity is considered an ideal tool for diversifying risk given its innate ability to increase in value during times of economic uncertainty or decline. 

Exchange-traded funds (ETFs), like SPDR Gold Shares (GLD), enable investors to purchase gold without acquiring mining stocks. Since ETFs are designed to echo the value of this commodity, not tangibly distribute it, ETFs are considered to be an equitable portfolio diversifier amongst investors while its extensive history has revealed that it’s the ability to retain value over the years to be considerable. 

If you are considering diversifying your portfolio, it is a wise decision to analyze how major economies across the world are performing. Should economies be reflecting signs of turmoil then generally the value of this commodity increases due to its strong positive price elasticity. 

To conclude, gold is an affluent commodity that is used by investors across the globe as an effective way to diversify risk and protect investments.