Why Invest in Gold?

From ancient times to the modern day, gold has always been synonymous with wealth and prosperity. Historically this precious commodity has been a store of liquid wealth and was frequently used for trading. Although no longer circulated in the form of currency or even backing any major currency, it remains an important and integral asset held by major Financial Institutions, Governments, Central Banks (and not forgetting smaller individual investors).

Physical gold offers investors the opportunity to spread their investment risk through a balanced portfolio, by offering them a store of wealth outside of the banking system. Even though there is no gold standard, gold is still seen and used as the world’s universal currency, providing a stable and reliable alternative to printed fiat money.

In a diversified investment portfolio gold plays an integral part due to its negative correlation with stocks and bonds.
Although the price of gold maybe volatile in the short-term, gold maintains its value over longer periods of time, providing a useful hedge against the erosion of fiat currency values.

For these reasons, Gold is often referred to as the ‘crisis commodity’ because of its ability to hold value in the face of financial and geopolitical uncertainty. Much is made currently (2018) of the high value of the US Dollar and how its strength has depressed gold prices. Equally many financial analysts believe that the dollar will have to fall again at some stage, and this is when the gold rally will occur – many argue well above its previous highs of $1900 an oz.

Purchasing physical gold as opposed to ‘paper gold’ and keeping it in one’s own possession enables an investor to reduce personal exposure to banking related risks, whilst maintaining wealth diversification. However, security of personal storage then has to be taken into account.

Finally, gold is a very rare resource. If all of the gold ever mined were refined into pure form and melted into a block it would be approximately 19m (cubed) – approx. 165,000 tonnes. This natural scarcity is what makes it so precious, together with the other benefits of; colour, malleability and anti-corrosive properties.

Whilst it would be risky (if not foolhardy) to place all of one’s available wealth in gold, it certainly should form part of one’s portfolio, if only to balance, to some degree, the risk associated with other investment forms.