The advantages of investing in gold
Private investors today are faced with a bewildering number of options when it comes to finding the right home for their money. Advice on how, when and where to invest is available from hundreds of different sources. But the need to maintain a well diversified savings/investment portfolio is advice with which all competent financial advisors would agree.
Choosing the right mix for a portfolio depends wholly on the circumstances and objectives of the individual investor. Whatever criteria are selected, however, there is probably no better recommendation than the portfolio strategy endorsed by Swiss bankers, whose classic advice is to hold at least 5% in gold.
The tangible international asset
For thousands of years, gold has been man’s premier store of value, more trusted world wide by individuals than any paper investment or paper currency.
Gold cannot be inflated by printing more of it. It cannot be devalued by government decree, and, unlike paper currency or many other kinds of investments [such as stocks and shares], gold is an asset which does not depend upon anybody’s promise to repay.
Rare
Although gold has been mined for more than 6,000 years, only about 110,000 metric tonnes have ever been produced. If you could bring it all together, that is just enough to make a cube measuring only 18 metres along each side. Because of the scarcity, gold is one of the most sought after metals on earth.
Gold cannot be fabricated by man. Nature limits its supply. The amount of new gold mined each year totals less than 2,000 metric tonnes - an amount that could be fitted comfortably into the living room of a small modern house.
Gold - the ideal hedge...
...against long-term inflation
Throughout recorded history, gold has held its value against inflation. Experts say, for example, that the same quantity of gold is needed to buy a loaf of bread today as in sixteenth century England. This is why so many investors worldwide see it as the “ultimate asset” - an important and secure part of their investment portfolios.
...against devaluation
Gold has an international value that tends to respond to the changes in value of national currencies. Time and again, gold has proved a successful hedge against the devaluation of an investor’s national currency.
...against a severe downturn in stocks & shares
Gold is one of the few investments that has survived - and even thrived - during times of economic uncertainty. Gold is man’s classic hedge against almost any monetary crisis, moving independently of paper investments.
For example, in the slump following the “Wall Street Crash”, from September 1929 to April 1932, the Dow Jones Industrial Index slid from 382 to 56 - a drop in value of 85% - and some 4,000 U.S. banks closed their doors. Meanwhile, the price of gold actually went up.
Gold also increased in value during the events following “Black Monday”, October 19, 1987, when the Morgan Stanley index of world shares fell 19% over 10 days. And during the mini-crashes which have afflicted the stock markets since then, gold has held its value and ignored the travails of share investment.
Click here for the 2009 International Financial Services London Bullion Markets research
Investment characteristics of gold - Institutional investors
The investment characteristics of gold are rooted in the structure and dynamics of the gold market.
Relatively inelastic supply combined with healthy demand growth is exacerbating the supply-demand gap.
This situation has resulted in positive price performance for a number of years.
The availability of above-ground stocks in near-market form underpins typically low volatility.
The diversity of demand – both geographically and sectorally – is the basis for the lack of correlation between returns on gold and those on other assets.
The size and maturity of the gold market make it the second most liquid commodity market after oil.
Click for a broad range of investment statistics >>
Source: World Gold Council, www.gold.org
