Gold – A Sound Investment?
With financial uncertainty being a recurring theme in today’s world, some investors are looking to gold as a diverse and sound investment option.
Investing in Gold
It is possible to invest in gold through exchange-traded funds (ETFs), purchasing physical products such as bullion coins, or buying stock. Some may argue that gold no longer holds the same monetary qualities as it did it the past with paper or digital currency being in favour. While on the contrary, others argue that gold is a unique and necessary asset for all investors to hold in their portfolios.
A Summarised History
Gold goes back to even before the ancient Egyptians starting using it to craft jewellery, ornaments, and religious artifacts. Then around 560 B.C. gold started to be used as a form of currency when merchants looked for a way to standardise and simplify trading. That is when stamped gold coins were born. Following this, the importance of gold grew with relics from different empires being displayed in museums across the world and countries forming their own currencies until gold became a symbol of wealth around the world.
Throughout generations, gold has held its wealth whereas paper currencies have not. At the start of the 70’s an ounce of gold was worth the equivalent of around $35. The purchasing power that $35 gave you back then around $270 today.
With an ounce of gold or $35 at that time in the 70’s it was possible to purchase the same thing, such as a new bicycle. In the modern day you could still trade an ounce of gold for enough cash to buy yourself a decent bicycle but the same is not true for $35 in paper. This is because gold has held its value while inflation has eaten away at the value of the dollar as a paper currency.
Using Gold as a Safe Haven
During periods of political and economical ambiguity, investors tend to look at gold as a kind of safe haven. Throughout history in times of collapsing empires and political troubles, investors who held gold were able to successfully protect their wealth. Consequently, investors will often purchase gold as a safe haven if news events hint towards some type of global economic concern.
An Increase in Value
In recent months, gold has become more valuable. Almost breaking its all-time record high price mere weeks ago when it reached over the $2K mark for the first time since setting the $2069.40 record in 2020. Some experts say that gold prices will continue to rise with how the economy is right now, while other experts are less optimistic.
High Rates of Inflation
If you have visited the supermarket, bought a train ticket or purchased pretty much anything during the past year then you’ll have noticed the sharp increase in inflation. Although some prices are slowly lowering, they are still steep. However, some areas such as property and vehicles still have numbers rising on the price tags.
With high inflation, every penny has less purchasing power than it did before. Historically, the price of gold usually rises as cash value declines. Therefore, todays inflated prices could be a reason to potentially invest in gold while prices adjust. Gold is seen as a store of value through market highs and lows.
Concerns About a Recession
In the current economic climate, it comes as no shock that many are continuing to worry about a recession. Less than six months into the year and already high interest rates, rising prices, and a rugged stock market has been seen. As well as income rates crawling instead of soaring in unison with new tariffs, many people are also concerned about major staff layoffs.
Some investors may be interested in diversifying their portfolio in an attempt to avoid the knock-on effect that a recession could have on the stock market. The value of gold tends to change independently from stock prices, therefore when the stock market is down the price of gold often holds steady.
Although the financial future remains uncertain, gold has still captured the interest of investors and is seen as a hedge against inflation. In times of uncertainty, expanding an investment portfolio to make it more diverse can be appealing to some investors as a method to sail through the storm. As with every investment, gold comes with its own set of costs and risks. Whether it is a sound decision to invest in gold will depend on an individual’s circumstances and market outlook.
With a number of options available to our clients, we can find the optimum investment portfolio to fit your needs. Contact one of our Wealth Managers today to get started.