All things being equal, the less the correlation between two investments, the better suited they are for effective diversification. Many investors combine tangible assets, such as gold, with their stock and bond portfolios to reduce risk. This means that gold is an excellent asset to hold in conjunction with paper investments in order to reduce total risk. Not only is the risk reduced due to the negative correlation between gold and paper assets, but gold has often produced exceptional investment returns on its own. Gold's negative correlation with stocks and bonds tends to increase during periods of equity market stress, especially if the drop is unexpected.
Gold tends to perform well when investor confidence is low.
Gold prices tend to move in the same direction as oil prices. Increases in oil prices are the cause of several stock market declines during the last 32 years. Gold investments can be very useful in reducing the overall volatility of an investment portfolio because, on average, they tend to move in the opposite direction of paper investments. The Ultimate Hedge Gold should form the foundation of your investment portfolio. The American Eagle gold bullion coin is an excellent way to own and hold gold for your investment foundation.