Investing in gold, in the long run, has proved to give little to no results. Even famous investors like Warren Buffet said that the act of buying gold itself is ridiculous. All we do is dig it up from the ground, melt it and store it in a room surrounded by guards. He also said that if anyone was watching this from Mars they’d be perplexed. But for those of you, who’d like to invest yet haven’t got the success or track record of Warren Buffett, fret not, because for once, you’d be right.
Investing in gold has quite a few benefits often overlooked by people looking to make a quick buck. The problem with investing in gold is to not treat it as any investment and looking solely at the returns.
Here are a few reasons as to why investing in gold could be a wise decision:
Gold is more than just an investment
We go out and get insurance cover on all things that we care about. Anything that can help us from the unpredictability of life, we tend to have insured.
Gold, in this sense, is our insurance for our investments. It doesn’t work the way a conventional insurance policy works but does provide the same benefit of an insurance policy, which is to give you peace of mind. Gold acts as a form of diversification for your portfolio and we all know that diversified portfolios are less prone to extreme fluctuations in the stock market.
Take for example the unexpected Brexit vote. Not many people expected it to happen and yet when it did, a lot of people lost a lot of money when the global stock markets plummeted. Even allocating a small portion of your investments towards gold can help mitigate losses.
Assume you’re an investor with a portfolio worth S$100,000.
Now allocating a measly 5% of this portfolio towards gold will leave you with 95% or S$95,000 of the portfolio in stocks. If the market sees a new bear enter and causes a drop in stocks of 20%, and at the same time the value of gold increases by two times its price, then the value of your stocks goes down to S$76,000, but the value of gold has risen to twice its price, and your holdings in gold would have become worth S$10,000.
Therefore the overall loss of in your portfolio has been limited to 14%. It is still a big loss but imagine if you had invested everything in stocks. Your loss would have been 20%.
Resurgence as currency
From time immemorial (not really, but sure feels like it) gold has been chosen as a symbol of wealth and as a preferred currency. From Romans to ancient Greece, from Spanish conquistadors to British Empires, gold was the form of currency that helped shape the society.
Gold has been the cornerstone of the international monetary system and a stabilising factor for the various national currencies currently present. With the current monetary system in a constant state of flux, the uncertainty that follows any one type of currency is unsettling.
Given the unchartered challenges that are currently faced, there is an increasing cry for gold to re-enter the monetary realm on a global basis to act as a stabilizing agent.
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Gold is a precious metal and rightly so. The value of gold when compared on a historical basis as seen only slight changes. Regardless of the change in prices of goods or services, gold somehow moves along in relation. This means that an ounce of gold today, can be used to buy similar amounts of goods and services as it would have been able to do historically.
The value of gold is almost a constant. Hence people refer to gold as the hedge against inflation. When comparing other currencies on a historical basis, S$100 could get you a lot further back in 1970 than it could today.
Gold’s imperviousness to price fluctuations has led to the coining of the term, ‘the golden constant’ and as such, it acts as a far superior form of money than paper currency. Physical gold has the ability to retain its purchasing power and the price of gold itself is monitored closely to look out for signs of future inflation.
What do you think of adding gold to your investment portfolio? Let us know in the comments below!
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