THE CASE FOR GOLD

Why investors turn to gold

Gold presents a uniquely versatile investment proposition because of its dual nature as both a consumer good and an investment asset. This means it can deliver effective diversification in periods of financial turmoil while also benefitting from growth in jewelry and technology demand during periods of economic growth.

Discover how investment portfolios can benefit from gold.

DiversificationAn effective way to hedge risks like inflation

Unlike equities, gold has historically performed well in periods of financial turmoil, meaning investors can use it for portfolio diversification and as a source of liquidity.[1]

Because gold is a scarce resource with value that doesn’t depend on the creditworthiness of its holder, it has maintained its worth for thousands of years.[2] Gold helps investors manage the risks that other financial assets bring; playing a key role in creating a more balanced and stable portfolio.[3]

This infographic compares the returns from gold, commodities, and the S&P 500 index, here are the definitions of the less well-known terms.

S&P 500: The index of the top 500 companies publicly traded in the US — an index being a measurement of performance.

Commodities:  Physical assets traded by investors like oil, gold, and foodstuffs

Bubbles burst

But while most assets tend to increase their correlation to equities in periods of high market uncertainty and often fall in tandem, gold’s price has generally increased in these same periods.[4]

LiquidityA flexible, accessible choice

The perception of gold as a cumbersome, immobile asset doesn’t reflect the realities of today’s gold market. Gold flows freely, with more than $180bn traded on a daily basis[5] — exceeding that of major financial assets.

Because of its liquidity, gold is useful in times of both expansion and recession. And if investors have illiquid assets that prove difficult to sell, they can still use gold to meet their most immediate needs.

This graph compares the average daily trading volumes of various major financial assets, here are the definitions of the less well-known terms.

US 1-3 yr Treasuries The index of US Treasury bonds that mature (or expire) in 1 to 3 years — an index being a measurement of performance.

S&P 500: The index of the top 500 companies publicly traded in the US.

US T-Bills: A US government debt obligation backed by the Treasury Department.

UK Gilts:  Government bonds from the UK are called gilts.

The 5-step guide for buying gold safely

Use our buyer’s guide to invest in gold with confidence.

BUYING GOLD SAFELY

ReturnsA proven asset with competitive returns

  • Since 1971, returns on gold have been similar to equities and outperformed bonds.[6]
  • In the last 20 years, gold outperformed most major asset classes.[7]
  • In the last 20 years, gold’s global investment demand increased by an average of 15% per year.[8]

Through its dual nature as a consumer good and investment, gold has historically preserved its value. Unlike fiat currencies, gold can’t be printed, only mined — this explains in good part why it has consistently outperformed all major fiat currencies.[9]

The final graph compares the average returns for some of the major asset classes, here are the definitions of the less well-known terms.

REITs:  Real Estate Investment Trusts

MSCI US: Morgan Stanley Capital International’s US index — an index being a measurement of performance.

EM Bonds: Emerging Market Bonds 

BBG commodities: Bloomberg’s commodity index

Diversification. Liquidity. Returns. Gold is your strategic advantage.

[1] The relevance of gold as a strategic asset, US edition – Individual investors, May 2020, section 2.

[2] Money and Gold, gold.org

[3] The relevance of gold as a strategic asset, US edition – Individual investors, May 2020, section 4.

[4] Also see The relevance of gold as a strategic asset, US edition – Individual investors, May 2020, section 2.

[5] Based on estimated one-year average trading volumes as of 31 December 2020 includes estimates on over-the-counter (OTC) transactions, as well as published statistics on futures exchanges and gold-backed exchange-traded products, for more information see trading volumes on goldhub.com:

[6] As of 31 December 2020. See also The relevance of gold as a strategic asset, US edition – Individual investors, May 2020, section 1

[7] As of 31 December 2020. See also The relevance of gold as a strategic asset, US edition – Individual investors, May 2020, section 1

[8] As of 31 December 2020. Metals Focus and World Gold Council. See demand and supply section on Goldhub.com

[9] See The relevance of gold as a strategic asset, US edition – Individual investors, May 2020, section 1 Chart 4.

DIVERSIFICATION

The process of investing in a varied mix of assets so that the risk of any one asset dropping in value has less of an impact on your overall portfolio.

LIQUIDITY

Some assets, like stocks, are liquid — meaning they sell for cash quickly, easily, and at cost. By comparison, property is less liquid because it sells slowly, and may sell for less than it’s worth. Cash is considered the most liquid asset of all because it’s commonly exchanged for other assets.

ASSET

Any resource that has economic value is an asset. Obvious examples include property and art, but, in investment terms, ‘assets’ include things like stocks, bonds, and even cash.

IMMOBILE ASSET

As the name suggests, ‘moving’ or selling an immobile asset (sometimes called an illiquid asset) can be difficult. The asset may also lose substantial value in the process.

RETURNS

Over time, assets go up or down in price. If you sell an asset for a higher price than you bought it for, you make a positive ‘return’ or profit. The reverse is known as a loss. Returns are calculated using percentages.

EQUITIES

When you invest in a specific stock or share, you buy a small part of a company being traded on the stock market. Equities is another name for these stocks and shares.

BONDS

When companies and governments borrow money, they issue what’s called a bond as a form of a receipt — and will pay interest to whoever holds the bond. Because they represent a specific amount of money, bonds can also be traded as assets.

FIAT CURRENCIES

Fiat currencies are the money printed, minted, and used by most countries (the US Dollar or British Pound are examples of fiat money). Rather than being worth a specific amount of something precious, like gold, governments can keep printing fiat money. However, if governments print too much, this can cause inflation and even hyperinflation.