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Throughout history, gold has been considered a symbol of wealth, power, and reliability. Over thousands of years, it captivated civilisations and led to the rise and fall of empires, acting as the medium of exchange for many ancient societies.
In the modern age, gold is still held in high regard. While it may not be a feature of our currency system anymore, it’s still the most popular of all precious metals. Used in fashion, manufacturing, investment, and more, gold demand is still remarkably high. With that in mind, let’s explore five compelling reasons why many investors still consider gold a good investment.
Let’s start with why gold has value in the first place. Unlike paper money, which derives its worth from trust in the government, gold has inherent value. Gold can be found naturally across the world, but it’s rare. For one, a significant portion of the world’s mined gold comes from South Africa alone. This rarity means it can’t be produced on a whim, given its scarcity.
Its beauty and resistance to tarnishing have made it universally desired for thousands of years. As such, gold has been seen as a store of value for generations. It’s portable and widely accepted by virtually every society; it can easily be melted into gold coins and bars. Its tangibility means that it cannot be hacked or easily seized.
Perhaps the best example of its reliability is its use in the Gold Standard in the 19th and 20th centuries, which pegged the value of US dollars to gold. While various currencies have come and gone throughout the years, gold has remained steadfast—so much so that many central banks still hold several thousands of tonnes of gold bullion in their vaults.
Inflation refers to the general increase in the price of goods and services, which diminishes a currency's purchasing power. Inflation can be described as ‘too much money chasing too few goods’; it’s often the result of an increase in the money supply. And when currencies weaken, the cost of living increases. However, gold tends to march to its own rhythm.
Historically, during periods of high inflation, gold prices have often risen in tandem. Gold is finite—there is only so much gold on earth. As demand for gold grows (even as the simple result of population growth), the overall gold supply sees only marginal gains through gold mining. Consequently, when fiat currencies, which can be printed at will by central banks, depreciate due to inflation, many investors turn to gold as a safe haven.
In other words, while your money might buy you less and less as time progresses due to inflation, gold tends to retain and even enhance its purchasing power.
Diversification is the process of spreading portfolio risk across various asset classes. Through diversification, investors aim to combine assets that do not move in tandem (minimal correlation), allowing one investment’s gains to offset potential losses in another.
Historically, gold has shown a low correlation with assets like stocks, bonds, and real estate. When other assets fall, the price of gold often remains steady or even appreciates. For instance, as the stock market entered a downturn following the 2008 financial crisis, the gold market briefly dipped and then went on a multi-year bull run.
Effectively, gold can help investors overcome volatility in their portfolios. It can act as a strategic investment, smoothing out performance fluctuations and potentially offering steadier returns.
One of gold’s standout attributes is its remarkable liquidity. Whether you're in New York, Tokyo, or Johannesburg, physical gold can be quickly converted to cash—there’s likely a dealer ready to buy gold from you. Even if you’re not looking to sell your gold but simply want a short-term loan, it can be used as collateral.
Moreover, gold, particularly physical gold, is relatively easy to transact. Part of this is its simplicity; it’s a much more straightforward investment than stocks or bonds. This is especially beneficial during economic downturns. Whereas stocks or bonds may be harder to liquidate at your preferred price, gold demand increases during recessions, making it easier to sell.
While these factors have remained true for decades, the internet has further enhanced gold’s liquidity. There are gold exchange-traded funds (ETFs) that invest in physical gold and specialised platforms that offer gold trading, offering a wide range of avenues for any investor looking to quickly convert their holdings to cash.
Gold protects against global uncertainty. When geopolitical tensions rise, financial crises hit, or civil unrest picks up, gold has been the go-to asset for many. Gold often appreciates during these times because it’s a safe haven, acting as a refuge thanks to its enduring value. It’s also why some create a gold hoard; should the worst happen, they can always rely on their stash to help them through it.
In owning gold, investors possess something that has universal value. It functions as a safety net, resilient against external shocks and serving as a lifeline in extreme circumstances. A physical gold investment can be an even more effective buffer since it can’t be easily taken or seized, yet is still relatively liquid. In essence, gold can be a powerful insurance policy, providing a level of financial security that few other assets can match.
In summary, gold remains a timeless investment, offering a wide range of benefits not found in other assets, from inflation hedging to portfolio diversification. There are, of course, downsides not mentioned here, like storage costs or the lack of income generation seen with stocks and bonds. For that reason, it’s worth evaluating the overall picture before taking the first step into the world of gold investment.
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