Gold As An Investment

1. Gold As An Investment

2. Gold is a unique asset: highly liquid, yet scarce; it’s a luxury good as much as an investment. Gold is no one’s liability and carries no counterparty risk. As such, it can play a fundamental role in an investment portfolio. Gold acts as a diversifier and a vehicle to mitigate losses in times of market stress. It can serve as a hedge against inflation and currency risk. Key facts that investors should know:

4. Gold As An Investment Gold is a mainstream asset driven by many factors, not just investment demand Gold is one of the most effective diversifiers Gold provides competitive returns compared to other major financial assets Gold offers downside protection and positive performance Over time, fiat currencies – including the US dollar – tend to fall in value against gold. The combination of these factors means that adding gold to a portfolio can enhance risk-adjusted returns.

5. But how much gold should investors add to achieve the maximum benefit? Portfolio allocation analysis (based on the seminal work of Richard and Robert Michaud) indicates that investors who hold between 2% to 10% of their portfolio in gold can significantly improve performance. This is also true even when assuming a conservative average annual gold return of a modest 2% to 4% – well below its actual, long-term historical performance.

7. How to buy gold There are many ways to buy gold. Different products can be used to achieve a variety of investment objectives. Investors should consider the options available in their market, the form of investment that is appropriate to their circumstances, and the nature of professional advice they will require. Deciding how to invest in gold involves reviewing the various gold-related investment products The various gold-related investment products, all of which have different risk and return profiles, liquidity characteristics and fees. Typically, an asset allocation strategy will consider long-term versus medium-term returns, and how gold investment products perform in positive or negative correlation with other assets.

8. Buying physical gold (bars and coins) Small bars and coins accounted for approximately two-thirds of annual investment gold demand and around one quarter of global gold demand over the past decade. Demand for bars and coins has quadrupled since the early 2000s, and the trend covers both the East and the West. New markets, like China, have been established and old markets, like Europe, have reemerged.

9. Buying gold-backed ETFs and similar Physically-backed gold exchange traded funds (ETFs), exchange traded commodities (ETCs) and similar funds account for approximately one-third of investment gold demand. These funds were first launched in 2003 and, as of March 2016, they collectively hold 2,300 tonnes of physical gold on behalf of investors around the world Buying into allocated gold accounts Bullion banks offer their institutional or high net-worth customers allocated gold accounts consisting of gold deposits and resembling currency accounts. The holder of an allocated account is the legal owner of a specific quantity of gold. Bullion banks also offer unallocated accounts. In an unallocated account, a customer does not own specific bars or coins, but has a general entitlement to a set amount of gold. The investor is not the legal owner of any physical gold, but rather is a creditor of the provider.