In turbulent times, preserving your capital can be an even more important concern than growing your capital. With this in mind, investors regularly include gold in their portfolios and consider it a 'safe haven' asset because when equity and bond values fall during periods of volatility, the price of gold tends to rise. Gold is also seen as a 'store of value' asset which can hold its worth over the long term.
Why invest in gold?
During exceptional circumstances, such as geopolitical upheavals or financial downturns, gold has a reputation for outperforming most other asset classes. In the aftermath of the 2008 financial crisis, for example, as stock markets plummeted, the price of gold rose steeply to its highest level in 30 years.
Gold is also held by investors as a protection against long-term inflation. Consider how dramatically house prices have risen over the decades, in fact the average UK house price has increased by 273% since 1959 in real terms (Halifax, January 2010). However, in gold terms, the average price of buying a house in the UK since the 1960s has remained steadily between 200-250oz of gold.
"Significant increases in inflation will ultimately increase the price of gold. Investment in gold now is insurance."
Unlike most commodities such as wheat or copper, which have their price determined by physical supply and demand, the price of gold tends to be driven by other factors including exchange rates and bond yields.
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Gold as an Investment
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