Like so many others, I routinely revisit the question as to whether gold is a buy or a sell during my trading sessions. Gold is an important precious metal, given that it is stored by central banks the world over and it is the go-to financial asset when equities markets turn sour and currency weakness pervades the markets. Consider for a moment that paper money has little or no value during inflationary times, but gold has a value in that it is a store of value. True, gold does not earn any interest, which is precisely the reason why an interest-rate hike by the Fed would be bad for gold.

Gold surges when equities markets falter. As such, I do believe that gold has an important part to play in the financial portfolios of everyday investors. However, if you were to include gold in your financial portfolio, the IRS would be taxing you at 28% since gold is a collectable item, and unlike equities which are held for more than a year prior to being sold, the tax on gold is significantly higher. This is an important consideration to bear in mind if you’re considering holding physical gold stocks or purchasing gold shares.

However as a binary options trader, you can speculate on the future price movements of gold without being subject to these tax constraints. The value of gold is predicated on fear and uncertainty. When the equity bears come out to play, this bodes well for gold. As you can imagine, the US economy is doing particularly well now in comparison to the global economy, so it makes sense that the gold price is rather suppressed. In the aftermath of the global financial crisis, it is apparent that equities market weakness resulted in a surge in the price of gold.

Important Relationships with Gold and other Precious Metals

However, I would like to dispel the myth that gold is a hedge against inflation. If you look at the data over time, it is evident that this relationship is spurious at best. The return on gold during times of high inflation is not correlated in any meaningful way, or vice versa. The assumed positive correlation may well have been true in the 1970s – not anymore. Owning gold certainly has its benefits in a bearish economy, but there is no need to actually take possession of physical gold stocks to benefit from the gold market.