Gold as an Investment

Why Gold is Appealing as an Investment

The Latin word for gold is aurum, which can be translated literally into English as glowing dawn. Gold artifacts from places like the Balkans and Israel date back for more than 6,000 years. Clearly, gold has value and has proven to be a solid investment over the course of time. If you’re interested in expanding your portfolio to include gold, take a closer look at why that’s a good idea, how to invest in gold, and how diversification can be key to your financial planning. 

The Historical Value of Gold

Something about the glint and sparkle of gold has always been appealing to humans. When gold was first discovered and used, it was desirable because it was malleable but strong. Unlike other precious metals, it retains its shine after being manipulated.

Gold has a special place in the history of the world with the earliest human interaction with them  being long lost to us and its association with the gods, with immortality, and with wealth itself are a common theme in numerous cultures throughout history.

Humans seem to have intuitively placed a high value on gold around the world using it for decorative purposes and then eventually as a form of currency. The first known use of gold as money occurred sometime around 700 B.C., when Lydian merchants produced the first coins. These coins were simply stamped lumps of metal consisting of a 63% gold and 27% silver, and known as ‘electrum. Over the centuries, countries have explored the globe expressly for the purpose of finding gold, as evidenced by expeditions to the New World in search of Montezuma’s treasures. 

Today, gold is no less valuable. Although not all currencies are tied to gold through the gold standard, it remains highly valued by investors and governments alike. The prices of gold can and do fluctuate, but there has never been a time when gold was considered to be without value. It is highly prized, and its history of value showcases just how important this precious metal is to the world. 

Gold’s Limited Supply and Society’s Increasing Demand

In any basic high school Economics class, students learn about the principle of supply and demand. Nowhere can you see this theory more clearly than in the gold market.

There is a limited amount of gold in the world. The World Gold Council (WGC) estimates that 190,040 tonnes of gold have been mined throughout history, with only about 54,000 tonnes remaining in the earth that can be accessed and mined at reasonable costs.  

While the amount of gold available on planet Earth is limited, its demand has no cap. People from around the world still value and desire gold. Whether it be for jewelry, coinage, security, or investment, there is no end in sight for the demand for gold. As the global population continues to grow and the availability of gold shrinks, the value of gold will only continue to climb.

Appreciating Investment Diversification

Gold as an investment has historically been a very stable choice because it retains its value incredibly well over time. While some volatility can occur, savvy investors understand that isn’t necessarily a bad thing.

Gold doesn’t move in direct connection with other investment trends. Often, it increases in value while the stock market declines in overall value. Even taking standard deviation into account, it is clear that gold truly does march to the beat of its own drum. While some investors might turn away from gold because of this, it is a huge benefit for anyone seeking portfolio diversification. 

Even if you’ve already decided to diversify your holdings, consider whether they fall along the same market trajectory. When the economy wavers, does your entire portfolio move along with it? The reason so many people choose to invest offshore or invest in gold is because these investment options are truly unique, which can significantly reduce the vulnerability of your holdings. Even if some of your investments decrease in value, gold can still hold strong or increase.

How to Invest in Gold 

There are several options for investing in gold. You can buy up as many gold bars or coins as possible and keep them right in your own home. Of course, that’s probably not the smartest or the safest long-term solution. Other investment options can include buying stock in gold mining companies, purchasing shares in a gold exchange-traded fund (ETF), or participate in a gold loan program such as the one offered by Caye International Bank. This program allows you to borrow against your gold that is securely housed in Zurich, Switzerland. This is particularly helpful with immediate cash needs arise.

Leveraging Against Gold’s Value 

For many investors, simply holding gold will be enough to add diversity and depth to a portfolio. For others, gold can be a means of leverage if and when immediate cash flow becomes a necessity. In this respect, owning gold outright can be nearly as liquid as holding cash.

There’s no doubt that gold can be a smart investment. It is especially appealing to investors who gravitate toward offshore investing and portfolio diversification. Whether you’re in it for the long haul or you want to hedge your bets against a volatile market, gold should be considered a key part of your investment strategy. 

This article is copyright © 2020

Luigi Wewege is the Senior Vice President, Head of Private Banking of Caye International Bank, Belize, Central America.
Luigi Wewege

Luigi Wewege is the President of Caye International Bank headquartered in Belize, Central America. Outside of the bank he serves as an Instructor at the FinTech School in California which provides online training courses on the latest technological and innovation developments within the financial services industry. Luigi is also the published author of: The Digital Banking Revolution which is available in audio, kindle and paperback formats throughout all major international online bookstores – now in its third edition.

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