In future years, when the dollar reverts to the average, what will happen to your savings then? This is a perfect cautionary tale for why gold is so valuable in your portfolio.
Given the strength of the U.S. dollar, it is surprising that gold has held its own in 2014. Even though the yellow metal lost some of its value last year, it still outperformed all major world currencies except for the U.S. dollar.
“Sentiment toward the yellow metal right now is less than ideal” because of the strong dollar, writes Seeking Alpha contributor Frank Holmes.
“But to keep things in perspective,” he says, “its performance this year has far outpaced that of 2013, when it fell 28 percent—its worst showing since early into President Reagan’s first term.”
Should you put your money into gold?
If you ask central banks around the world, they’d tell you “yes.” Russia has been the world’s biggest buyer of gold in 2014, with gold holdings now ranking in the top five worldwide. The central banks of India and China are also buying more gold.
And there’s a trend among European nations who are seeking to bring their gold reserves back. While voters in Switzerland have rejected the idea in a closely watched gold referendum, the possibility is currently under discussion in France, Belgium, and Austria. The Netherlands and Germany have already brought back some of their gold reserves, with the former repatriating 122.5 tonnes a few weeks ago from the US.
For most people, says Holmes, gold remains “an exceptional instrument” for portfolio diversification.
The bottom line is that gold appreciated against most major currencies in 2014, and for investors outside the United States, it has brought positive returns second only to the U.S. dollar. In other words, people in any other country would have been quite happy with their gold.
If you are not sure whether gold is for you, just think what happens when the dollar isn’t as strong?
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Image source Seeking Alpha