Gold as insurance

Insurance of any form is supposed to protect you by mitigating the damage caused by any unforeseen crisis. And for your financial portfolio, gold does exactly that. Given its low correlation with major asset classes like stocks and bonds, gold tends to perform well during an economic crisis.

Take the stock market crash of 2018, for instance.

During this time, investors found shelter in their gold investments. It compensated for their losses and provided them with liquidity.

Even during times of inflation, when prices are at their highest, gold acts as a safety net for investors. Given its limited supply and intrinsic value, the demand for gold never goes down, and neither does its price.

Not just that; investors also use gold as a hedge against currency depreciation. When the dollar gets weak, gold tends to get more expensive. Hence, people turn to gold as a haven when paper currency seems to be under threat.

Historically speaking, when currencies are demonetised, or their purchasing power falls sharply, or when the share market comes crashing down, gold in investors’ portfolio comes to the rescue. Hence, gold makes for a sensible addition to your portfolio as it acts as a fruitful diversifier.

What role does gold play in your portfolio – is it an investment vehicle or an insurance against it? Gold has something to offer your portfolio that no other asset can. It can work as an investment avenue and simultaneously as an insurance against financial crisis.

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