Gold has historically been andue to the it offers investors. Not only is the supply of gold finite, but it's used in everything from electronics to industrial processes. And, when you add in the fact that it's generally a low-risk asset for investors, it's easy to see why this precious metal is so popular.
And, that trend has only grown over the past year. Gold investments have increased significantly over the last 12 months, and investor allocations to gold are now the highest they've been since 2012, JPMorgan Chase & Co. analysts reported this week.
But why are a growing number of investors putting their money into gold? There are a few reasons why this trend may have occurred.
Why investors are buying gold now
Investors are likely buying into gold right now for a few different reasons, including:
It's a hedge against inflation
Over the last 18 months,has wreaked havoc on the economy. And that has likely been a driver for the recent uptick in gold investing.
When inflation is high, the purchasing power of the dollar erodes. In turn, investors lose purchasing power because their money doesn't go as far as it otherwise would have. But the value of gold typically increases when there's a devaluation of traditional currency. So by adding gold to their portfolios, investors are actively.
It's a good tool for portfolio diversification
Gold is also a useful tool, which is likely adding to the increase in demand for this precious metal. That's because gold's price generally moves in the opposite direction of traditional investments, like stocks and bonds.
When these types of investments experience a downturn, gold acts as a counterbalance, providing stability for your portfolio. And with so many economic uncertainties on the horizon right now, it's likely that investors are flocking to this precious metal to ensure that their wealth is protected.
It performs well in uncertain economic climates
Global geopolitical tensions and other economic issues are also a likely contributor to the uptick in. Everything from political conflicts to trade disputes can cause market volatility. This, in turn, negatively impacts traditional investments.
But gold is a physical asset with intrinsic value, and it typically performs well during periods of economic uncertainty. It acts asand is typically a valuable asset during these types of economic climates.
Gold also offers potential tax benefits
, depending on how you're investing, which may also be contributing to the uptick in gold investing. The tax perks can make certain types of gold investments an attractive option if you want to save for retirement while capitalizing on gold's potential to grow in value over time.
Take, for example, the potential tax benefits that come with(IRAs). If you hold certain types of gold in your IRA, the gains are tax-deferred. There may be other tax benefits if you meet the criteria and take distributions in retirement.
The bottom line
There are likely a few different reasons why more investors are adding this precious metal to their portfolios right now. But no matter what the cause, the surge in gold investments underscores how valuable gold can be to your portfolio. While gold is not the sole solution for uncertain economic climates or periods of high inflation, it remains a timeless asset with the potential to shine when other investments falter.
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