Gold as a hedge against bear markets

Investors are protecting their assets by hedging against a bear market. So many investors are turning to gold, to hedge against such risks.

A bear market exists in a receding economy, where most stocks are declining in their values. The players of the stock market should be cautious about the falling share prices in such a situation.

The world’s most elite investors are constantly working to protect their wealth, even if that is Bull market or Bear market: according to Sprott.com.

This practice is very necessary for the varying uncertain situations. And if the volatilities led to a bear market, it might affect the expected returns.

Portfolio Diversification in a bear market

The best possible way to protect one’s investments is to have a diversifying portfolio. It means holding various types of asset groups.

These assets should not be correlated to each other. So if one particular industry is facing some downward trend, investments in another non related industry might gain profit.

Here the price movements of both assets are in different directions. So in diversified portfolios, the prices of assets are not moving in just one direction. Thus the diversified portfolios reduce risk.

In the case of stock markets, where high chances of risk prevail, this is the best method to reduce loss. This acts as a protection for the investments.

Gold as a hedge

This metal is the best method to hedge against risks in stock markets.

“Gold has been the store of value for thousands of years. It reduces volatility. Moreover, it is considered as a safe haven asset for financial risks.” Sprott.com reports.

Ray Dalio uses gold to protect the Bridgewater Associates, the world’s largest hedge fund with $150 billion in investments. This is one of the best examples of hedging through the yellow metal in a bear market scenario.

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