Count on Gold, says the World Gold Council. Should you count on that?
“When the going gets tough, you can count on gold.”
Many of us would have seen this in a front-page ad in a prominent newspaper by the World Gold Council.
The WGC said historically, gold has proven to be an investment that is low on risk and high on returns, urging people to buy gold to secure their finances.
What is the World Gold Council
The WGC is the market development organisation for the gold industry.
Its aim is to stimulate and sustain demand for gold, from mining to investment.
That would make the WGC an interested party, keen to push gold.
Will you ask a barber, “Do I need a haircut?”
Okay, so the WGC is pushing gold as an asset class to secure your finances.
Does it mean you should ignore what they are saying?
The first trait of sensible investing is to listen.
The WGC makes sense; as they say, an investment portfolio is incomplete without gold.
Now that makes sense. Asset allocation is one of the cornerstones of sensible investing.
Let us look at the data to see what are the money bags doing with gold.
Look, who is buying gold?
Central banks worldwide have been steady buyers of the yellow metal since January 2023.
Why central banks buy gold
Central banks buy gold because it is a crucial part of their financial reserves.
Over 35,000 metric tons of gold are held by central banks, roughly 20% of all gold ever mined.
These are the reasons for central banks to buy gold:
Long-Term Appeal
- Gold has been crucial in nations' financial reserves for centuries.
- Central banks are still buying more gold, showing its enduring appeal.
- Over 35,000 metric tons of gold are held by central banks, roughly 20% of all gold ever mined.
Diversification and Stability
- Central banks use gold to diversify their reserves.
- Currency values can fluctuate based on economic conditions.
- Central banks may print more money when the economy is weak, devaluing the currency.
- Gold is finite and can't be easily produced, making it a hedge against inflation.
Trust Factor
- Gold carries no credit or counterparty risks.
- It serves as a universally trusted asset in all economic conditions.
- It ranks alongside government bonds as a key reserve asset.
Relationship with the U.S. Dollar
- Gold and the U.S. dollar have an inverse relationship.
- When the dollar loses value, gold typically gains value.
- This helps central banks stabilize their reserves during market volatility.
Should individuals buy gold?
Why Include Gold in Your Investment Portfolio
Different individuals have varied reasons for investing in gold. Some see it as a family heirloom to be preserved for future generations, while others rely on financial experts who recommend gold as a wise investment.
Here are the primary reasons for adding gold to your portfolio:
A Reliable Asset for the Long Haul
- Gold has historically been a stable store of value.
- Gold has consistently held or increased its value, unlike other market assets that can depreciate.
- Its value often moves in the opposite direction of other investments like stocks, offering a safety net when other assets decline.
A Shield Against Rising Prices
- Gold acts as a safeguard against inflation.
- Among asset classes, gold is one of the least prone to wild price swings.
- Its value tends to remain stable or even increase when other, more volatile assets struggle.
Quick and Easy to Convert into Cash
- Gold is a highly liquid asset due to its strong market demand
- It can be quickly sold in urgent situations, providing immediate financial relief.
- The process of liquidating gold is generally straightforward and quick.
No Expertise Needed
- Investing in gold is user-friendly and doesn't require specialized market knowledge.
- Its simplicity and the variety of investment options make it accessible to virtually anyone.
Ways To Buy Gold
· Physical Gold: Of course, the easiest way to invest in gold is to buy gold coins, bullion or jewellery. You can visit any gold store and buy these.
However, a big disadvantage to this is the money you may lose in making charges. You will also have to find a way to store these investments safely.
· Digital Gold: An alternative to physical gold investments is digital gold investments. A 24K physical gold investment backs every investment you make. You can start your digital gold investments with as little as Rs 10!
· Gold Sovereign Bonds: Issued by the Reserve Bank of India, Gold Sovereign Bonds are among the best ways to invest in digital gold. Apart from the underlying asset appreciation, they also provide annual interest on your investments.
· Gold Mutual Funds: These funds invest in stocks of gold companies, physical gold and other gold investments. Through investments in these assets, you can diversify your gold investment.
· Gold ETFs: Gold Exchange Traded Funds make gold investments and allow you to trade in fractions of them like equities.
Sensible Nugget
Whether you're an individual investor or a central bank, the enduring appeal of gold as a stable, trustworthy asset is hard to ignore.
From its long-term value retention to its role as a hedge against inflation and market volatility, gold offers a multifaceted approach to safeguarding your financial future.
While organizations like the World Gold Council may have a business interest in promoting gold, their advocacy is backed by the asset's historical performance and current trends.
Central banks worldwide have been consistent buyers, and their reasons for doing so—diversification, stability, and trust—are as relevant to individual investors as they are to nations.
So, if you want to build a more resilient investment portfolio, consider adding a golden touch.
We are sure you enjoyed reading this article.
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