✨ Why you should consider gold in your investment portfolio

30 November 2023

🔑 Key takeaways 

  • Gold is more than just a symbol of wealth; demand for the metal has ensured its value throughout history. Unlike paper currencies which can lose value to inflation, gold can act as a store of value, preserving wealth.
  • Among investment options, gold stands out because its prices act independently to other assets, like stocks and bonds. Its value is primarily determined by supply and demand for the metal itself.
  • Gold is viewed as a safe-haven asset. As part of an investment portfolio, it can act as a counterbalance against market volatility.
  • There are exchange-traded funds (ETFs) which mimic the performance of gold. By investing in these, you’ll essentially be owning gold without the burden of physical management. And our Flexible Portfolios offer an easy, low-cost way to invest in gold.

Ever wonder why gold is seen as the symbol of wealth? Throughout history, cultures across the world have placed great value in this eye-catching metal. But in today’s modern world, should you invest in this precious metal as part of a diversified portfolio?

Gold is often what investors fall back on when other forms of currency lose their value, serving as a safety net of sorts. And it’s historically proven its resilience, performing well when traditional assets like stocks and bonds perform poorly.

Yes, gold can be a powerful part of your investment portfolio, serving as a unique, defensive asset that protects against inflation and market volatility – and here’s why.

📖 A sparkling, enduring history 

It's not just about jewelry; historically, gold has served as a medium for traders to do business with. Its rarity and its beauty has ensured its continued demand throughout human history.

Back in the 18th century, nations began to tie the value of their currencies to gold. Coins and paper notes were simply representations of existing gold stored in vaults. This was the gold standard. But it didn’t last. The United States abandoned the gold standard in 1971, and most countries today have followed suit.

Having said that, countries around the world still hold large amounts of physical gold in reserve for one simple reason: preservation of wealth. Paper currencies can lose value over time due to inflation. Gold meanwhile can serve as a shield against currency inflation. When inflation rises, gold usually appreciates.

🧮 What affects the prices of gold? 

Gold offers an investment avenue that stands apart from traditional stock or bond investments. While equities are tied to a company's performance, and bonds are tied to interest rates, the value of gold marches to its own beat.

In fact, gold prices have historically been negatively correlated to the performance of other assets. In other words, when stocks or bonds perform poorly, gold usually performs well.

The main factor for gold rates: supply and demand. When consumer demand for gold increases during economic downturns, or when central banks move to increase their gold reserves, prices generally move upwards. And when demand for gold drops, usually during economic booms, gold prices move back down.

Note that the rate for gold is typically denominated in US dollars. Retail buyers and central banks both have to sell US dollars to buy gold with. It’s because of this relationship that higher gold prices often come hand-in-hand with weakness in the greenback, and vice-versa.

📈 Gold as a safe-haven asset for your portfolio 

Remember the 2008 global financial crisis? Or the recession following COVID-19? Whenever the stock market takes a plunge, investors flock to gold, seeing it as a safeguard against inflation and volatility. From economic downturns to geopolitical tensions, gold has continued to showcase its mettle (pun intended) as a resilient asset.

Notice how gold becomes a go-to asset during turbulent times, with demand pushing up its price. Because of this, gold can be a safety net during downturns. And by diversifying some of your investment mix with gold, you’ll be adding a buffer against the risks associated with traditional equity or bond investments.

Unpredictability will be part of any long-term investor’s journey – but there are ways to mitigate this. By diversifying your investments, you reduce the risk of any one asset’s poor performance bringing down your portfolio overall.

And gold is an especially powerful diversification tool because of its negative correlation with other assets. So while gold doesn't promise the high returns that stocks might, it offers a unique protective layer to your investment portfolio.

🌟 How to invest in gold 

While you can buy physical gold in the form of bars or coins, there's an easier way – gold ETFs. Gold ETFs are designed to track the price of gold without the traditional hassles.

Whether you're looking to hedge against inflation, diversify your portfolio, or simply believe in the enduring value of gold, investing in gold ETFs will effectively provide these benefits.

Our Flexible Portfolios can be a cost-efficient method of investing in gold. A single-ETF portfolio – here’s a step-by-step guide – will cost only 0.3% in management fees, annually. For our Flexible Portfolios, gold is represented by the SPDR Gold Trust ETF.

But these portfolios aren’t limited to just gold; they’re designed to let you easily customise your own investment strategy. Choose an ETF exposed to India to capture growth there, or perhaps start investing in the S&P 500. These portfolios give you the freedom to invest however you feel most comfortable – they’re just that flexible.

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