Why buy gold ? Why should you invest in physical gold ?
Discover our concise guide to understand why you should invest in gold bullion bars and coins.
Gold as an investment has a lot of distinctive benefits, as we will describe further. It is important to understand them before to make any decision. You can then decide if physical gold is the right asset for you and if you should invest in or not.
1. Safe Heaven
Gold is a perfect asset for long-term investment, mostly to preserve your wealth because of the following reasons.
Gold tends to maintain its value overtime, especially during times of political and economical uncertainty. Gold was a great asset in 2017 / 2018, as a "hedge against fear". Political instability is an indicator of weakness in Government, and Government is eternally linked to their issued currency. Loss of confidence in Government often signals future weakness in currency. Therefore, gold is considered as an insurance asset.
Moreover, Gold conserves its purchasing power during periods of high inflation. Since gold is a precious metal with a limited supply, it has an intrinsic value. In comparison, fiat money tend to loose its value overtime, if adjusted to the inflation rate. According to experts, gold is a good hedge against the weakness of the US Dollars. Historically, destabilisations in the price of fiat currencies has pushed the gold price higher.Therefore, what matters is not its price, but rather what you can buy with it.
2. Portfolio Diversification
Gold Returns: Historical Data from the World Gold Council
Experts state that having a small portion of your portfolio in gold is a good diversification strategy. Just as property was a good asset to invest before the 2007 financial crash, gold can become a solid asset to hold at any time. Spreading your investments across various assets is a wide strategy. It is the best way to reduce risk and hedge your other assets.If your stocks are underperforming, the likelihood is the gold price will over perform.
A proportion of 5-10 % of your wealth portfolio in the form of gold is a good starting point. Even if gold does not produces income compared to other assets, it is not its role. As explained, it is a store of value, that is uncorrelated to other asset
Historical data shows that gold consistently outperforms any other investment overtime. However, there is common a misconception that you have to be really wealthy to buy gold bullion. In countries like Russia, Austria, Germany or Turkey (which have all experienced economic collapse in recent history), it is very common to hold physical gold bars and gold coins. Moreover, India also has been a nation who position gold as a safe haven and an excellent way to protect and preserve wealth.
3. Tangible asset
Even if it is not used as a currency nowadays, its historical role as a monetary unit has always make it attractive. For over 3000 years, it has remained a store of value essentially because its following features:
- Portable: because of its density coupled with its high price, few grams of gold enables you to store substantial amount of money while being easy to carry.
- Divisible: with the wide variety of gold coins available in the bullion market, gold can be easily divided into smaller units.
- Fungible: gold can be converted all other the world into any other local currency.
- Durable: because of its properties, gold can last for decades without being degraded.
4. Increasing Demand
Gold is a commodity that is relatively rare in supply. However, gold has a large set of use, including jewellery, technology and as an investment asset for central banks and investors. Jewellery remains the main sector for the gold demand, with India and China being the largest markets in volume. As an investment asset, gold is used by investors within their portfolio to protect their purchase power, reduce volatility and minimise losses during market turmoils.
In addition, gold has mostly been used in the electronic sector, as the primary conductor used in the manufacturing of motherboards for instance. But with the increasing advance of "nanotechnologies", gold is becoming the target for new emerging sector, such as medicines, engineering or environmental management. From delivering drugs into the human body to develop advanced catalysts that can purify water or air, gold properties find applications in wider range of sectors, making its future promising.