By Andrew Rosen via Iris.xyz

Precious metals are on the rise again.

With the price of gold hovering around $1,300/ounce, we are getting a fair amount of inquiries about investing in it (and other precious metals). Generally, these questions arise when these asset classes are on the rise or when there is a lot of global uncertainty.  These days we have a bit of both, so it’s a great time for some clarity on the question.

Let’s start with the Pros and Cons of investing in the gold (and other precious metal) asset class.

The Pros:

  1. Perhaps the biggest Pro of buying gold is to hedge against deflation, while also helping a portfolio fight potential inflation. There are studies that show gold historically grows with inflation, with the 1970s often given as a prime example. Investors, rather than parking a large sum of money in a bank account that will generally grow less than inflation, will purchase gold to maintain one’s buying power.  Subsequently, during deflationary times when consumers lose faith in government and the economy, they flock to a proven store of value in gold (e.g. the Great Depression).
  2. Gold is generally viewed as a safe haven investment because of the days where the US dollar was fully backed by gold. During times of extreme market uncertainty, a huge influx of money flows into gold (which tends to lead to appreciation or “supply equals demand”).  Although there is substantially more US currency than gold these days, the old mentality as a safe haven remains.

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