Buying gold is a great investment for the long term and remains the best performing asset of the 21st century, with an average return of 15% a year, over the last ten years.
Why should I buy Gold?
Gold is generally considered to be a good foundation asset for most long term savings or investment portfolio setups.
The history of gold as an investment, going back centuries and in particular during times of financial uncertainty, has meant that investors often seek to protect their capital in assets that offer a safer store of value. A strong ‘wealth preserver’, gold’s stability in uncertain financial times means it remains a top priority for today’s shrewd investor.
Being one of very few financial assets that do not rely on an issuer’s promise to pay, gold is the ideal asset in which you can move away from any widespread default risk. It provides a way for investors to manage any risk of extreme movements in the value of other asset types.
Some of the many reasons for the recent and widespread upsurge of interest in gold as an asset class are as follows:
Diversify your portfolio
The majority of investment portfolios are usually made up of financial assets like stocks and bonds. By diversifying your portfolio you are then achieving additional protection from fluctuations in the value of any single asset, or indeed group of assets. The risk factors that may affect the price of gold are very different from factors that affect other assets and asset groups. Any investment portfolio, small or large, that contains gold is generally considered to be less volatile and a stronger proposition to those that do not contain gold.
For many of the same reasons as previously stated above, gold is very often used as a hedge against currency fluctuations, especially the US dollar. If there is a rise in the value of the dollar, gold price generally falls. On the other hand a fall in the dollar (the world’s main trading currency) generally produces a rise in the price of gold. This is why gold consistently proves to be the most effective asset in protecting investors against dollar weakness.
As market cycles come and go, gold retains it’s purchasing power over the long term. Gold’s value has remained extremely stable for centuries. In direct contrast, the purchasing power of many currencies has declined, due mainly to the continuous rising prices of goods and services worldwide. Therefore the clever investor will very often rely on gold to counter this inflation and fluctuations in currency.
A much less volatile asset than most commodities and many equity indices, gold tends to behave more like a currency. This offers gold investors low volatility, and may help to reduce overall risk in a portfolio, adding a beneficial effect on expected returns. Gold also manages risk more effectively as it can protect against “tail risks” (infrequent or unlikely but consequential negative events on markets).
Demand and supply
Gold prices are linked inextricably to the shifting balance of supply and demand. The demand for gold has shown consistent and sustained growth over the past decade. Alongside this fact, long lead times and increasing production costs have not resulted in any noticeable increase in gold mining output since 2001. These supply and demand factors have laid the way for the most positive long term outlook for gold investors in over a quarter of a century.