Gold’s traditional role
Many investors hold gold due to its traditional role as a ‘hedge’ – an investment position that is expected to offset losses in other areas of a portfolio.
That idea is based on the price of gold being inversely correlated to some other asset classes. As one goes down, the other goes up, and vice versa.
The pros and cons of investing gold
Currency risk
One asset group that gold is used as a hedge against is currencies, particularly the US dollar.
As USD is the world’s reserve currency and is widely held, fears that it may fall in value can be offset by holding gold, which should go up in price if the greenback does weaken.
Reprinted from eToro, the copyright all reserved by the original author.
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