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Forex is one of the cornerstones of the financial market.
Gold, also known as XAU (ticker symbol) is one of the most traded commodities in the world, thanks to its special ability to function as a safe haven. When interest rates diminishes or inflation runs amok, gold provides an excellent venue to protect your funds.
The modern financial market holds gold as means of diversification and growth. Going back to the `70s, the volume of gold mined each year has tripled, the amount of gold that were obtained each year has increased fourfold, furthermore gold markets have flourished across the globe.
Why do people invest in Gold?
Gold is a rare asset, and though limited highly traded.
A luxury good as much as a financial asset, XAU (gold) doesn't carry any counterparty risks. Due to its unique nature, gold can play the role of a fundamental asset in any investment portfolio. Furthermore, gold acts as investment vehicle that helps you to diversify, and to reduce losses when markets panic, and reacts to fear.
It can also function as a counter asset against inflation, and currency risks.
One of the key FAQ’s that investors should learn of: XAU is a primary asset driven by several factors.
According to the World Gold Council, gold serves as a competitive return compared to other major financial assets, also, gold offers downside protection and positive performance over time. Fiat currencies tend to fall in value against gold when uncertainty arises.
Gold in Modern economy
To understand the role of Gold in modern economy, one must also understand the relation between gold and governments, which is known as the “Gold Reserve”.
So, what is the “Gold Reserve”? And what role do they play in our economy?
Gold Reserve used to backup the country's own currency. Which means, that there might be a temptation for nations to spend beyond their capacities, that is beyond what they are able to produce. If nations print money that is not backed up by anything other than what is purchased with it, then the value of that currency is devalued as you print more. Excessive printing of a Fiat currency can in fact trigger hyperinflation.
Gold vs zero interest rates and instability
Negative Interest Rate Policies (NIRP) made Gold as a better investment than what it is used to be.
Sometimes, financial logic is very straightforward: interest rates goes down, and the value of gold goes up.
Here is a not too long-ago example: in January, 2001, we still had a 6% interest on the Dollar, and by December, 2001 we already had a 1.75% which translate to marginal ROI.
Furthermore, Markets have the tendency to become very volatile, and crush every couple of years, so diversifying your portfolio with Gold may be a solid thing to do. However, every investor and trader has different needs, and just adding Gold to your portfolio, without the proper Training & Education, may harm you.
more than you might think, so just make sure that you understand the risks before doing anything in the financial markets.