Individuals: Saving for the Future
For small savings or a more substantial long-term investment, buying gold or gold-backed financial products protects wealth and can increase risk-adjusted returns. Having a small amount of gold within a balanced investment portfolio can potentially reduce its overall risk, helping to protect against market shocks.
While it is reassuring to have a physical asset of enduring value, investors buy gold for many other sound financial reasons.
Gold helps protect the value of money
Gold is a tangible asset which cannot be printed at will. As such, it protects against inflation and currency devaluations. For example, in 1971, a family in the US could buy a house with US$25,000. Today, US$25,000 is not enough for a mortgage deposit. By contrast, 700 ounces of gold (the equivalent of US$25,000 in the 1970s) can buy a US$1 million property today. A growing body of research has shown that having a portion of savings in gold can improve purchasing power over the long term, especially as the real value of most major currencies declines.
Gold performs under pressure
In turbulent times, gold is resilient. The amount of available gold is constrained and cannot be expanded at will, as is the case for fiat currencies through expansionary monetary policies – especially in times of financial and economic crisis. Additionally, unlike a stock, where the underlying company can go out of business, or a bond, where the issuer may default on a coupon or redemption payment, gold has no credit risk.
The long-term outlook for gold is strong
Demand for gold continues to outstrip supply. Jewellery and technology applications make up more than 65 per cent of demand, and most gold is bought in the world’s fastest-growing emerging markets. China and India account for more than half of total consumer demand, annually. Mine production, however, accounted for only 74% of gold demand in 2014. In addition, central banks are no longer net sellers of gold, so the rest of the demand is currently fulfilled with recycled gold. With demographic and economic trends predicting increasing wealth and expanded populations in the world’s two largest gold markets, gold demand has the potential to continue rising.
It is easier to buy gold than most people think
There is a common misconception that investing in gold is complicated. Today, there are many ways to invest in gold. Through the advent of exchange-traded funds (ETFs) such as GLDⓇ , investing in gold is as easy as investing in a stock or share. Other ways to invest in gold include purchasing physical bars and coins. Some investors also take exposure to the gold price through index trackers or gold industry stocks and shares. The alternatives continue to expand. Further, the market is highly liquid, meaning that it is easy to buy and sell gold on demand, including through online platforms and at some of the world’s largest banks, 24 hours a day.