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Gold is at record levels—what now?

Although gold is known as a ‘save haven’ investment, normal fundamentals still apply

THE GOLD price recently reached ano-ther all-time high, prompting investors to reassess their current exposure. Is it time to take profit for those who have held positions in gold, or is it better to just hold on? And if an investor does not hold any gold, is there still a case to be made to initiate a position now?

Gold as a “safe-haven asset”
Gold, along with cash and certain other instruments, is generally regarded as a safe-haven asset. Safe-haven assets tend to provide relief to a portfolio during times of market stress.

Risky assets, like (most) equities, are the growth engine of a portfolio—which add the bulk of returns during the good times, but during times of crises those assets can suffer severe drawdowns, and more reliance will be placed on other defensive assets to cushion overall portfolio returns.

Risky assets are needed to generate growth over the long term, but at the same time, limiting drawdowns limits the extent and duration of recovery needed to return to a pre-crisis portfolio value.

When there is a lot of stress or uncertainty in markets, gold generally appreciates in value due to its …

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