LONG before we had wallets full of credit cards, even before we had the old ‘paper’ money, the most common way to buy things was with gold.
The amount of gold someone owned was a measure of their status in society.
The power of the precious metal led to gold rushes around the world — including the 1851 gold rush in Australia where people flocked to the Victorian town of Ballarat.
Fast forward a couple of hundred years and it’s pretty rare to own anything other than a small amount of gold jewellery.
Since we all now use paper money as currency, gold has been transitioned to an investment tool, and unfortunately, mainly only by the wealthy.
But let me give you six good reasons why you should be considering investing in gold right now.
MONEY SHOULDN’T GROW ON TREES
The ‘paper’ money that we all use is being printed by Governments at an alarming rate. Since this cash is not backed by a physical asset, it is easy, but not good, to keep printing more of it.
Government debt around the world is at record highs. The US Government has debt in the trillions, Australia, the UK and most of Asia (other than China) are all up to their eyeballs in debt.
All this debt puts extreme pressure on the value of a country’s currency.
As a result we are seeing extreme levels of volatility in currency markets.
When there is volatility in currency markets, especially the US dollar, interest turns to safer investments, such as gold.
Right now there is money flowing into gold stocks, physical gold and gold ETFs.
This is a sign that investors are concerned and seeking a safe haven for their money.
As with any type of asset, if demand increases, eventually price increases.
GOLD IS A FINITE RESOURCE
Physical gold has a limited supply.
Limited supply and higher demand, equals increased price for gold. That’s what we want in an investment, right?
Unlike in the gold rush era when gold was being found in great quantities, there haven’t been any significant new gold mines discovered in the last decade.
Gold miners continue to mine existing and neighbouring sites, but there hasn’t been enough new discovery to balance demand.
This constraint on supply will eventually impact the price as well. Especially if currency markets experience any form of panic.
So far I have looked at the reasons to invest in gold that are related to what is happening in the global economies.
Now let’s look at some basic investor reasons for having gold in your portfolio.
INVESTOR INSIGHTS
You’ve probably heard the talking heads on television mention the word ‘diversification’.
In simple terms it means don’t have all your eggs in one basket.
In Australia, the majority of households have their wealth heavily skewed towards property, and to a lesser extent the stock market.
Only this week we learned that property prices in Sydney have fallen by six per cent in the past year. Melbourne hasn’t fared much better.
And despite the stock market inching closer to record highs, there is concern that companies are finding it harder and harder to grow and therefore push stock prices higher.
In times where property and stocks aren’t able to generate above-average returns, big financial institutions look elsewhere to make money.
That’s where gold and other precious metals like silver become attractive.
By spreading your available investment dollars across multiple assets — that is, diversifying — you add some protection to your portfolio. If the other assets fall in value, gold rises to partially offset the loss.
IS THIS REALLY A SAFE PLACE TO PARK YOUR MONEY?
Every time there is a threat of a terrorist attack or trade war, investors talk about moving money to a safe haven.
And yep, you guessed it, gold is considered a safe haven. Since it is a physical asset and has a defined value, investors know they can put their money into gold in times of uncertainty, like war or terror, and it’s probable that it will go up in value.
GOLD HOLDS UP IN THE LONG RUN
The last good reason to be investing in gold is that it tends to increase in value due to inflation.
That $10 in your pocket will buy you $10 of goods today, but in 10 years’ time, it will by a lot less. That’s inflation working against you. Imagine being able to buy your parents’ home at the price they did. Scary isn’t it?
Gold on the other hand tends to increase in value with inflation. It’s considered ‘inflation proof’ as it is likely to retain your purchasing power.
Now we might not be returning to the old days when we used gold to purchase goods and services, but if you think like the rich, and look at these reasons I’ve outlined, there’s solid evidence that now is the time to be moving some of your investment money into gold.
