The allure of safe-haven assets: a complete guide to gold investment

On October 21, spot gold rose to a new historical high. The escalation of tensions in the Middle East and uncertainties surrounding the U.S. election have increased market demand for safe-haven assets. Several institutions predict that gold prices will continue to rise in the future, and gold, as a traditional safe-haven asset, has once again become a focal point for investors.

For some investors, investing in gold may not only be about the "beauty of gold" but also about its ability to resist inflation and risk—especially during times of economic volatility. So, what are the advantages of gold that make it worthy of investment?

– Wealth Preservation: Over time, inflation can erode the "real" value of currency. For example, a cup of coffee that costs $4 today may only buy a bottle of water in a decade or so. In contrast, gold has historically maintained its value, meaning that investing in gold can help protect investors' wealth from the effects of inflation.

– Safe Haven: The value of currency is influenced by national interest rates and monetary supply policies. During periods of economic and geopolitical uncertainty, currency values can fluctuate significantly, while gold tends to remain stable, giving it safe-haven properties.

– Portfolio Diversification: Gold typically has a low correlation with traditional financial assets such as stocks and bonds. Sometimes, the stock market may decline due to high inflation and economic uncertainty, but holding gold may still yield investment returns. Therefore, including gold in a portfolio can help reduce overall risk exposure.

While the overall risk is relatively low, investors must recognize that there is still a risk of wealth loss associated with gold investment. Like any asset class, gold prices can be volatile. Factors such as economic data, geopolitical events, and changes in investor sentiment can lead to rapid fluctuations in gold's value. Additionally, unlike many stocks or bonds, investing in physical gold does not generate fixed income or dividends.

Based on the above content, we can understand that investing in gold also carries risks. So, what factors can influence the price of gold?

After gaining a basic understanding of gold, you may be curious about how to invest in it. What types can be invested in? Next, we will introduce two methods.

Investing in gold through ETFs is usually more convenient, transparent, and cost-effective than directly investing in physical gold. Gold ETFs track the price of gold and are linked to physical gold, but they do not pay dividends.

Gold-related ETFs can be divided into two categories based on their underlying assets: gold ETFs and gold mining ETFs, which have essential differences. Gold ETFs are backed by a basket of physical gold or gold futures, while gold mining ETFs are supported by a basket of stocks of gold mining companies.

Gold ETFs are suitable for investors seeking a simple, convenient, and low-cost way to invest in the gold market, whereas gold mining ETFs are more appropriate for those willing to take on higher risks in hopes of achieving higher returns.

Investors should consider their risk tolerance, investment goals, and market conditions when making their choice.

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