Whenever the economic situation turns uncertain and people are worried about their equity and currency investments, they turn to gold for hedging their risk. Gold is not just a metal but also a very important financial commodity. Gold is something that remains under the ownership of the investor, and the value of gold is also rarely likely to decline in case of economic recession.
Inflation is the increase in the prices of all goods and services, which is realized as a decrease in the purchasing power of your dollars. Because of inflation, today’s dollars are worth more than tomorrow’s dollars. Typically, the Consumer Price Index, All Urban Consumers, All Items is the best measure of inflation. Inflation can steal your investment profits unless you have the right investment, the real estate and even the gold.
The value of stock, a financial instrument, is based on the fortunes or losses of the corporation issuing the stock. The value of a company will decline as inflation erodes the profits of the issuing corporation. Over time, as inflation is reduced, the fortunes of the company may improve and subsequently the value of its stock.
Real estate is durable good, which means it yields services or utility over time. The investment value is intrinsic to the real estate because it is not to a piece of paper backed by the performance of a company. Real estate investment, as a durable good, will increase in value as inflation increases its replacement cost. In many ways the bottom of the real estate correction is the cost of new home construction.
The key is knowing when inflation is about to go up. Gold is also a very good indicator of inflation. Once inflation hits, gold always goes up. But if you don’t have the time to keep checking the price of gold, you can still buy these coins while they’re still cheap. Once inflation hits, just cash in before it’s too late. Even if you cash in too early, you shouldn’t feel robbed. You still make more money then the rate of inflation.
Ever since the price of gold hit a record of three decades, belief of people about gold being the perfect inflation hedge has strengthened even more. While currency is subject to inflation, gold is not. With the increasing significance of gold as an investment commodity, it is not only the people who are investing in it, but also countries and companies.
It is evident that anyone who possesses investments in gold and real estate is likely to have more power and is likely to reap the benefit in the form of high returns. This is because investments in equity and other commodities are likely to loose their value considerably in time of a liquidity crisis or any other kind of economic crisis.