Much has been discussed about investing in gold in The Property Post recently. The purpose of this article is to continue on this discussion and to look at gold from an investor seeking a balanced investment portfolio’s point of view.
Based on a recent report in The Star, the price of gold was US$278.95 (RM847) per ounce on January 1, 2002. Fast forward to today or specifically March 6, 2012, gold price was US$1,706.32 (RM5,176) per ounce. That’s a 512% increase over a period of 10 years. Question. Did any of your other investments increase by this much over a similar period?
Having said that, I am not suggesting that you dumped all your other investment in favor of gold. Nor am I saying that by buying gold, you will be guaranteed to make a profit when you sell it later. Far from that. What I am trying to point out here is that gold can be viewed as PART of your investment to create a balanced portfolio. It should be used as a hedge against economic uncertainties like recession. Do bear in mind that the gold I am referring here has little to do with jewellery but rather gold bars, gold coins and gold certificates.
Now, you probably would be wondering or perhaps demanding for facts to back up my points. Well then, let’s take a look at gold’s characteristics.
In this increasingly challenging time, we have seen how businesses had gone bankrupt, governments overturned and borders shifted. And yet gold’s price has more or less has seen a steady growth. For more than 5,000 years, gold has been one of the most treasured and accepted precious metal and certainly one that had been a store of value. Though gold prices can be volatile in the short run but in the long run, gold has maintained its value.
Gold has long been used as a medium of exchange well before paper money was introduced. Currencies can become worthless (remember what happened to “banana money”?) but not gold. Its price will fluctuate but never will it become useless. The good thing about gold is that it does not belong to any country. It is recognized, accepted and traded all over the world. Kind of like a global currency if you may. This makes it less risky than cash in times of turmoil.
Gold is liquid and can be converted into cash pretty easily. Well, the liquidity level depends on the type of gold bullion that you have but when it comes to ease of acquiring and selling gold bullions, it is simple to do so.
Bullion coins provide a great way to own and hold gold. They are traded daily all over the world and there are lots of trading centers where you can conduct the buying or selling. Best of all, they do not need to be assayed (which may be the case if you are holding gold bars, especially the larger ones). Bullion coins are backed by the government of the country of origin. Take for example, the Gold Maple Leaf is Canada’s official gold bullion coin and is made by the Royal Canadian Mint.
Supply and Demand
The supply of gold is limited. An investor is competing with the likes of jewellery manufacturers, governments and banks for this limited supply. And according to Alfred Marshall’s supply and demand theory, this would push the price up. Need I say more? So you see, gold has intrinsic value that results in it being a less risky investment that helps balanced up your investment portfolio. Paper assets may gradually become not worth the paper they are printed on. But gold will always be worth its weight.