Should you invest in gold?

Jes 4 Comments

I have learnt a lot from the online financial course that I am taking currently. Now the topic is on gold. I heard that all Indians have safety deposit boxes in banks to store their gold. It is said that Indians can be cash poor but they definitely will have gold. Gold is their last resort to pawn off and it is reported that Indian hold 20,000 MT of gold, worth more than $1 trillion.

Gold has been used as a financial asset for more than 6000 years. It is one of the oldest ways to store wealth. Gold can be used as a jewellery, an investment, to store value, as money and also a good hedge tool. So why is gold worth investing?

From the graph, you can see that the annualized returns since 1970 for gold (red line) is around 9%, higher than the returns for US dollar. Gold has appreciated more than USD and is more resistant to currency fluctuations.

When there is fear of war, investors will want a safe investment and a stable anchor which is gold. For political insecurities and countries in danger of collapse, gold is always a good thing to keep as no matter what, gold will still be valuable. The yellow line is the price of gold throughout the years.
At the peaks of inflation (blue line), it correlates with the peaks in gold (red line). The reason for this hedge is because investors look for a safe currency that has limited supply, which is gold.

Even for stock market crashes, gold price has not moved in tandem. The red troughs (gold prices) are usually during the blue peaks (stock market index). However, there is opportunity costs for buying gold.
We will lose interests when owning gold instead of cash in the bank. This is not true for recent years as there is impending tightening of the central banks which means higher interest rates, making borrowing less attractive. Thus, gold is seen as a good option to collect higher returns.

In conclusion, gold can be used as a hedge against a collapsing currency, political tension, inflation, stock market crashes and other rare extreme world events. My only gold is the 四点金 or Chinese dowry and is not really bought with investment in mind. 

I would definitely consider owning gold in the future. How about you?

Jes

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4 comments:

  1. Hi Jes,

    Incredible. My next article should be gold and silver related and there you have it here first. Well done!

    I just bought myself some gold (physical ones from UOB) and silver (UOB silver savings account). In fact, silver is more undervalued compared to gold in terms of gold-silver ratio which is an important factor to understand.

    The problem with the world now US, Japan, Europe are printing like never before. The problem started since 1971 when President Nixon de-peg currency from gold. So fiat currency is really just controlled by US since US$ is the world reserve currency.

    If one day, countries start to lose confidence on US$, and maybe they will not buy oil in US$, then the fiat currency will loose its value. Gold and silver will then surge!

    By the way, hope that you are doing real fine with your little one growing. Must be exciting! Wish you all the best!



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    Replies
    1. Hi Rolf,

      Appreciate the history lessons and overview of investing in gold. All these are from the course material so I am just helping to summarize it here. I am really a newbie in investing as you already know and will await your in depth post on gold and silver.

      It is really exciting indeed to see my baby growing everyday and learning new things. However, it is also exhausting and boring haha. I guess it's a good break in my life and am treasuring my private moments with her. Thank you for your well wishes :)

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  2. hi Jes,

    interesting to note that more and more people are trying to invest in precious metals.
    i was on the fence as well, as i didnt know which was the best proxy to get exposure tp the metals.
    was comparing the UOB gold account too vs buillion star, and decided to go with the latter. since they were having a promo for 10 free BSP silver. haha. (not sure if they still have it now though)

    my post below:
    https://foolishchameleon.wordpress.com/category/precious-metals/

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  3. Hi FC,

    Thank you for sharing your post, it's a good way to get me off the fence! I still feel my knowledge is insufficient and will have to research more before investing and in the mean time, wait for their next promotion:)

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