Why you need gold in your investment portfolio

May 25, 2018

For thousands of years, investors have used gold as a measure of their wealth. And in 2018, in this world of cryptocurrencies and ETFs and investment trusts, they still do. Ask any experienced investor, and they will tell you that gold has to form a part of your diversified investment portfolio.

They might disagree about just how much – some might say 15 percent, while others might advocate as much as 50 percent, but at the end of the day, those are just numbers, and the most cautious investor will go for maximum diversification, which means erring on the lower side of that number range.

Buying gold

Buying gold might conjure images of unmanageable bars in an underground vault, or bags of coins hidden beneath the bed, but most people choose investments along the lines of 1 ounce gold bars from Golden Eagle Coins. These are the perfect balance between flexibility (at around $1.300 each) while still trading at a low premium. Thus you get the most out of your investment, and do not lose all your money in trading fees.


The world’s most robust currency


Up until the early 1970s, every currency, including the US Dollar, had its value backed at a set amount of gold – this was known as the gold standard, and was what protected and guaranteed the value of currencies. All that changed with Richard Nixon’s controversial decision to end the gold standard. He argued that removing the link between the US dollar and gold would empower the American people. Critics said it only served to expose the American currency to hyperinflation risk.


Almost 50 years on, and the debate is still raging on. But one thing everyone can agree on is the fact that the concept of the gold standard is still alive and well in hearts and minds – whatever might happen to the US dollar or any other fiat currency, the world still looks to gold for reassurance, particularly in times of financial turbulence.

The ultimate hedging tool


Investment advisors always tell you there’s no such thing as a cast iron safe investment. Change “cast iron” to gold, though, and you really can’t go wrong. Gold is the perfect hedge against either inflation or deflation. Take a look at the historic value of gold, either during a period of inflation or a depression, and you will see that it continues to go up.


Supply and demand

If the behaviour of commodities amid socio-political events leaves you scratching your head, here’s a point that’s easy to understand. Demand for gold is steadily rising, and it continues to go up all the time. The latest innovations in medicine and technology are finding new applications for gold every week, and this is a trend that will continue. At the same time, it is a finite resource, and subterranean resources are declining. Any 10 year old can tell you that when demand increases and supply becomes scarce, value is only ever going to go in one direction.