There are usually several types of assets for your investment portfolio that you need to be aware of. These are stocks, bonds, real estate and commodities. These are cash or they act as cash equivalents. In addition, an investment portfolio can be further divided into subclasses. For example, commodities can be divided into 3 sub-classes of precious metals, energy and other commodities. They are defensive strong dividend paying stocks, growth stocks, high risk speculative new venture stocks. For a balanced portfolio, it is always advisable to buy gold bullion and hold some gold in your investment portfolio.

The nature of gold as a precious metal

The most important characteristic of the commodity class is that it does not pay anything for its ownership. It brings no interest. It also pays no dividends. You earn primarily on the difference between the price you buy gold bullion and the price you sell it for.  Another characteristic is that value is primarily driven by market demand and market supply. For example, in the case of soybeans, when demand rises, the price rises. And if there is a supply shock, such as a natural disaster affecting a soybean plantation, the price also rises.

However, gold is also part of the Precious Metals subclass, which is available in a limited amount. Since it is mined, there is a limit to how large the supply can be. You can see that this is especially true for the gold case. Thus, in the case of gold, the price is determined on the demand side rather than on the supply side.

The Nature of Gold as Forex

On the other hand, its value is also determined by the production of other currencies. This means that if there is a crisis in Japan, gold denominated in Japanese yen will rise even higher.

Trend behaviour to determine when is the best time to invest in gold

Gold will react to certain factors like political or economic crises, currency devaluation and high inflation periods

1. Crisis

In times of severe crisis, their safe harbour profession can lead to a rise in the price of gold. This is because it is accepted by all and cannot match what is happening in the world. That in a crisis where confidence is lost, a safe flight means that funds start to flood into gold.

1. Currency depreciation

At a time when currencies are devalued, gold will rise automatically against that currency. This is the best way for those in countries where their money is devalued to preserve their wealth through gold.

1. High inflation

You will also find that Gold does very well in times of high inflation, especially due to supply shocks.

How it fits into your overall portfolio

You should have exposure to gold as part of your portfolio. Gold is usually counter-cyclical. If the price of stocks is high and the price of gold is low when the economy is improving, you need to balance your portfolio. This is done by pulling out some of your other investments that seem too large and putting in gold. This is to protect your overall investment portfolio, if problems arise and stocks lose money, your gold investment can help.

When is the best time to invest in gold?

For long-term investors, the best time to invest in gold is the calm before the storm. This is the time when the price of gold will be the lowest. During this time, slowly collect gold. Stop or postpone your purchases when the storm clears. If the storm seems to have cleared, you can decide to sell some of your assets to include the gains, or wait for prices to drop and then rebuild.

For medium-term investors

For medium-term investors, the best time to invest is at the first sign of trouble and the release of the first sign of resolution.