If you are looking to stabilize your investment portfolio, you should not look into investing in “more solid” stocks or “more reliable” bonds – No, we should look at precious metals; we should look at history and understand what the most stable investment option you can take advantage of. I am of course talking about gold. For thousands of years, gold has become the preferred form of value – from kings, emperors to peasants and slaves. Gold had value then, has value now and based on many factors, will continue to have value in the future. That's how powerful gold is. Sadly, most of the wealth that you have seen on Wall Street, the most wealth that you see in real estate markets is wealth made of air; it is a wealth made of trust. Something only has value up to the amount that it's hyped or believed. Once you shake the market's confidence, stock prices will drop like a rock, bond yields will crash, bond prices will crash and real estate markets will get depressed. All sorts of economic catastrophe can happen, but precious metals on the other hand shoot up like a rocket. That is the reality, which is the historical pattern. This is why you have to realize the importance of gold's stability for your portfolio.
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You have to remember what hedge means – hedge is not just insurance, hedge also means getting an offensive weapon that activates when the conditions are right. On its face, gold looks very defensive – how can it not? After all, when stock prices crash, the price of gold goes up. This has a defensive effect of basically helping you break even in terms of your overall portfolio value. With that said, gold is also a weapon, why? If the price of stocks in the real estate crash low enough, and the price of your gold holdings increases enough, you can sell a bit of your gold holdings to slowly buy more and more gold, more and more stocks and more and more land. As the market keeps crashing and gold keeps spiking up, you can keep buying and buying until the per acre value of the land that you bought is actually very low. Once you've achieved this, you only need to wait until the market makes a moderate recovery for you to make a lot of money. If you're really greedy and you really want to really make a ton of money, wait for the market to hit bubble levels again right before the crash. That's how powerful gold is. It doesn’t only bring stability to the table, it brings the opportunity for a bit of wealth.
When you look at the US dollar, it has this magical phrase on it called legal tender. Why did I say that it is magical? Well, that phrase could turn what would otherwise be worthless paper into something of value. The US government, by imprinting legal tender on the piece of paper says that it will back up that paper; give it value by its prestige and nothing else. Unlike in the 1900's, in the 1910's or the 1800's, if you had a piece of paper that the US government says as legal tender, there is a promise that you can take that piece of paper to a bank and redeem it for a certain amount of gold, why? The US government back up its money with gold. It backs up its paper money with something that has true value. Using this logic and the fact that people historically during times of war, economic catastrophe, calamities – would liquidate everything that they have – stocks, bonds, their houses, clothes, everything and convert it into gold so they can get out a dodge and start a new life somewhere. When they do that, they basically are reiterating the very old lesson about gold. It is the global legal standard. Of course, when you look at a bar of gold, it doesn't say legal standard on it, but it doesn’t have to. People will instinctively recognize that gold has value. They would, regardless of what language they speak, what religion they follow, what political ideology they have, what ethnicity they are, what color they are – it doesn’t matter. They realize that gold has value and if you are a holder of gold, you will get some value of out of it. That's how it works; that's why it's a global legal tender. This is a very important factor to know and appreciate when it comes to understanding how important gold's stability is for your investment portfolio. Gold will always have value, not just in your location but in all four corners of the globe – from Eskimos to bush ethnic groups in Africa to nomadic tribes in Asia – everybody knows the value of gold.
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Another key reason to keep in mind about the importance of gold's stability, is that a large of this stability revolving around a motion of rarity. Gold is rare enough. Is the rarest of the precious metals? Of course not. There are rarer precious metals that command a higher valuation of the market. The big issue is that its sources of rarity are quite stable. Compare gold to let's say palladium. Palladium often worth more that gold, why? Palladium is used in the industrial manufacturing process for catalytic converters which are used in the United States. This demand due to industrial production, boosts the price of palladium. If you take that away and you take away other uses of palladium, the price of palladium will probably crash even though it's rare – not with gold. Gold is rare for many, many reasons. It’s rare due to the fact that some industries use up gold in terms of production, also, many electronic circuits that use gold so there's a heavy industrial demand for gold. Also, gold is used as a jewelry – whether a part of an alloy or in pure gold jewelry. The interesting thing about gold jewelry is people don't normally give up their jewelry while they are alive, so there are many stories of gold that are really hoarded on a personal level. If you add all these factors together along with the fact that people do invest in gold, it is very rare and its rarity is stable. Keep this in mind when assessing the importance of gold's stability when it comes to your total investment portfolio. Make no mistake about it – if you want to truly protect the value of the majority of your investment portfolio, you can't go wrong with diversifying into gold.