Of all the precious metals, gold is the most popular as an investment. Investors generally buy gold as a way of diversifying risk, especially through the use of futures contracts and derivatives. The gold market is subject to speculation and volatility as are other markets. Compared to other precious metals used for investment, gold has the most effective safe haven and hedging properties across a number of countries.
Gold has been used throughout history as money and has been a relative standard for currency equivalents specific to economic regions or countries, until recent times. Many European countries implemented gold standards in the latter part of the 19th century until these were temporarily suspended in the financial crises involving World War I.After World War II, the Bretton Woods system pegged the United States dollar to gold at a rate of US$35 per troy ounce. The system existed until the 1971 Nixon Shock, when the US unilaterally suspended the direct convertibility of the United States dollar to gold and made the transition to a fiat currency system. The last major currency to be divorced from gold was the Swiss Franc in 2000.
Since 1919 the most common benchmark for the price of gold has been the London gold fixing, a twice-daily telephone meeting of representatives from five bullion-trading firms of the London bullion market. Furthermore, gold is traded continuously throughout the world based on the intra-day spot price, derived from over-the-counter gold-trading markets around the world (code “XAU”). The following table sets out the gold price versus various assets and key statistics at five-year intervals.
The famous investor Warren Buffet has already indicated that he considers gold as a bad investment. In particular, he argued that this product does not earn interest or dividends. He is not the only one to think so.
“For someone looking to generate income, it’s not ideal. In addition, the increase in the value of gold is generally less important than that of long-term financial markets. Historically, depending on the period, gold yields are usually far behind. ”
For example, gold has outperformed markets if we look at the last 45 years. “However, for 30 years, the price of gold has risen by 335%. Over the same period, the Dow Jones Industrial Average (DJIA) grew by 1255%. ”
In addition, investing in gold is less safe than its “safe haven” title suggests. Gold remains a very volatile product, that is, its value fluctuates a lot. “In 2011, the price of an ounce of gold was around $ 1900. Today, it stands at just over $ 1,300. ”
Advantages of investing in gold
Gold can easily be converted into money all over the world. Aside from the real money notes, the liquidity and universality of investing in physical gold are unmatched.
Keep his value
Gold tends to maintain its value over time. Economists say that even the price of gold is not indicative of its value. That is, even if the price goes down, the underlying value of gold does not change much. It is his purchasing power that is important. This is largely because there is a fixed amount of gold due to the fact that it is a commodity, while the US dollar or the Euro, are fiduciary currencies that do not hold any inherent value.
Effective protection against all risks
If it happens that all the currencies printed by our States catch fire, the gold, by cons, would not be afraid of being altered by the flames. Although it is not a traditional investment, let alone a productive asset producing any return, gold still allows the protection of wealth. It can also be used to cover a possible financial loss and constitute a precautionary resource.
We also remember that in 2008 and 2011, gold platelets or bullion played its role of protector during the unscrewing of assets on the stock market. Equities in gold have also experienced considerable demand, especially for investment gold coins such as the half-Napoleon. By getting it at a very good price during the period preceding the crisis, many losses have been absorbed by the smart guys who had this idea at the right time. This is where gold is excellent asset insurance.