Gold, with its long history as a hedge against inflation, a substitute for currency, and a tool for diversifying investment portfolios, has been attracting purchases from central banks and individuals around the world amidst the current political and economic uncertainties. However, it is important not to make investment decisions impulsively.
The price of gold has been maintaining above the $2,300 mark since breaking through it. There are at least two main reasons behind the sustained high price of gold: geopolitical tensions, including the Russia-Ukraine conflict and outbreaks of war in the Middle East; and central banks increasing gold reserves to diversify away from US dollar risks by reducing purchases of US Treasury securities.
Investing in gold, while not yielding interest income, is considered a popular method for hedging or diversifying risks, which can enhance the stability of investment portfolios to some extent.
Are you considering investing in gold in May? It is crucial to carefully weigh the pros and cons before making any investment decisions. While there are many reasons to consider investing in gold this May, there are also some factors that raise concerns. Understanding the pros and cons of investing in gold this year is of utmost importance.
Here are three pros and cons of investing in gold in May 2024 as compiled by CBS.
Published reports on US inflation in 2024 have consistently shown inflation rates higher than economists’ expectations. If inflation persists, it could further drive up the price of gold.
Buying gold can protect investment portfolios from the impact of currency inflation.
The current trading price of gold is $2,300.56 per ounce, a price that may give some investors pause.
Most experts advise against allocating more than 10% of investment portfolio assets to gold.
Gold prices generally do not rise rapidly, but the current situation is an exception, as the price of gold has recently hit historic highs multiple times.
Although there has been a slight decrease in gold prices, this cooling-off period may present an opportunity for buying at lower prices and selling for quick, higher profits.
With the Federal Reserve expected to cut interest rates this year, investors believe this is a favorable sign for gold prices.
At first glance, buying gold may seem similar to making any other investment. However, there are significant differences between traditional investment assets like stocks, bonds, and gold. One notable distinction between these investments is that gold must be stored securely.
Gold can be stored in a safe deposit box or vault. In either case, storage costs may need to be considered, which are additional expenses compared to other investments.
In the past, gold could only be purchased from specialized precious metal dealers, but that is no longer the case.
Today, gold is more accessible than ever, with large retailers like Walmart and Costco also selling gold coins and bars. This simplifies the purchasing process.
Unlike traditional investments like stocks and bonds that generate income, gold does not produce any income. While stocks and bonds may provide dividends and coupon payments, the only way to earn income from gold is through price appreciation.
Moreover, if the overall economic conditions improve, the growth in gold prices may slow down.
It is well-known that Warren Buffett dislikes investing in gold. He views gold as an asset that “will never produce any income.” Buffett has stated that buyers of these assets are essentially hoping that someone else will pay a higher price for them in the future.
In 2011, Buffett mentioned on a CNBC finance forum that holding gold assets is a way to bet on fear, but you really have to hope that people become more afraid in one or two years than they are now. If they become more fearful, you make money; if they become less fearful, you lose money. However, gold itself does not generate anything.