Gold as an investment: Key facts and insights
Gold has long been prized as a symbol of wealth and a reliable store of value. Unlike paper currency or other assets, gold retains its worth over time, serving as a trusted means to transfer wealth across generations.
Central banks and nations often hold gold reserves to stabilise economies and back their currencies. The United States leads globally with over 8,000 metric tons of gold reserves.
Uses of gold
Gold’s primary demand comes from the jewellery industry, typically accounting for one to two-thirds of total usage.
However, demand patterns can shift, particularly during global uncertainties. For example, the Russia-Ukraine conflict spurred a surge in gold investments, driving prices to around $2,000 per troy ounce in March 2022.
Despite a brief dip in October 2022, gold prices have remained elevated, with analysts predicting stability until at least 2025.
Central bank activity
Since 2010, central banks have been net buyers of gold, using it as a tool to stabilise economies during crises. This consistent demand has played a critical role in maintaining gold’s price stability and boosting its growth potential. Such activity underscores gold’s importance as a hedge against global financial risks.
Why invest in gold?
Gold offers a range of benefits that make it a compelling investment choice:
- Safe haven asset: Gold is widely regarded as a hedge against inflation and geopolitical uncertainty. Its value often rises when stock markets decline, making it a reliable option during periods of market volatility.
- Liquidity: Gold is one of the most liquid assets, easily bought and sold globally at any time. This high liquidity adds to its appeal as a flexible and accessible investment.
- Economic stability: Gold prices typically hold steady during economic downturns, providing stability compared to more volatile assets like stocks.
- Non-income generating: Unlike stocks or bonds, gold does not produce income. Its value comes solely from price appreciation, which can result in costs such as storage and insurance for physical gold.
- Diversified investment options:
- Physical gold: Offers direct ownership, though it requires secure storage and involves higher upfront costs.
- Investment funds: Mutual funds or ETFs that own gold provide a simpler way to invest, with some funds managing billions in assets.
- Gold mining stocks: Investing in mining companies offers potential for growth, as seen during the pandemic when gold-related stocks performed well.
Conclusion
Gold continues to be a vital investment, valued for its stability and ability to act as a financial safeguard. With central banks reinforcing its demand and the asset’s ability to withstand market volatility, gold remains a resilient option for investors seeking long-term security and value preservation.
