Is Gold a good Investment - The Pros and Cons - 31 May

A number of people have written asking about gold as an investment. I will present the pros and cons

Pros - By the World Gold Council

"Gold is a tangible asset which cannot be printed at will. As such, it protects against inflation and currency devaluations i.e. price of gold goes up if USD falls) . For example, in 1971, a family in the US could buy a house with US$25,000. Today, US$25,000 is not enough for a mortgage deposit. By contrast, 700 ounces of gold (the equivalent of US$25,000 in the 1970s) can buy a US$1 million property today. A growing body of research has shown that having a portion of savings in gold can improve purchasing power over the long term, especially as the real value of most major currencies declines.

Gold performs under pressure

In turbulent times, gold is resilient. The amount of available gold is constrained and cannot be expanded at will, as is the case for fiat currencies through expansionary monetary policies – especially in times of financial and economic crisis.  Additionally, unlike a stock, where the underlying company can go out of business, or a bond, where the issuer may default on a coupon or redemption payment, gold has no credit risk.

The long-term outlook for gold is strong

Demand for gold continues to outstrip supply. Jewellery and technology applications make up more than 50 per cent of demand, and most gold is bought in the world’s fastest-growing emerging markets. China and India account for more than half of all gold purchases, annually.  Newly-mined gold can only meet about two-thirds of current global demand. In addition, central banks are no longer net sellers of gold, so the rest of the demand is currently fulfilled with recycled gold. With demographic and economic trends predicting increasing wealth and expanded populations in the world’s two largest gold markets, gold demand has the potential to continue rising.

CONS 

Globally, demand for gold softened a little in 2014, according to the World Gold Council, with jewelry and investment up slightly over 2013. Investors shied away, due to the previous year's surge in demand, according to a third-quarter review by the council.

These demand pressures might be expected to attract new supply, bringing gold prices down to Earth. But Holmes says the low-hanging fruit of gold mining already has been harvested, and environmental regulations have raised the cost of exploration, extraction and shipping.

"It's much more difficult to get that asset out of the ground," he says.

So Is Gold a good investment?

Gold like any investment is driven by what the economy is doing and how the world views the value of gold. About half the Gold is made into jewelry. 

In 2011, the price of gold peaked at $1,920 per ounce–in some cases its value superseded that of the consumer price index. If the US dollar were to crash, experts predict the price of gold would skyrocket, as it would be considered a stable investment. However, if gold took a value hit, the US dollar and the NASDAQ would likely rise.

The United States has the highest percent of global reserves, with 75%–8,133 tonnes. China, with its huge demand, has just 1.6% or 1,054 tonnes of gold.

As with all investments it may have a place in your retirement account but you need expert help not a guess at what is happening in the World or a rumor you heard. This is where your Registered Investment Adviser can help.