Why consider investing in Gold?

investing in gold

Why Investing in Gold is crucial

Within the current economic climate – people often wonder why they should invest in gold. It’s simple – no one knows what’s around the corner. Gold is used as a hedge against all things uncertain. Investing in gold is often referred to as an insurance policy or a means of protection against the unforeseen. This could be anything from; uncertainty within financial markets, political ambiguity or foreign policy influencing war and/or terror. If you believe that none of the above is occurring today or will continue in the future then gold is not for you. Historically – these problems have affected society since anyone can remember.  Even when it may seem (or we are led to believe) that the economy is improving – there’s always a problem around the corner. The price of gold has come down more than 30% since 2011. Central banks in China, India and Brazil have used the fall in price as a significant buying opportunity in order to take out cheap insurance against unforeseen events. Applying the rhetoric, “Buy low, sell high” – the smart money are certainly taking advantage of the gold price.

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Money & wealth – two different things

There are so many compelling reasons that influence the market to take cover. It’s now common knowledge that the U.K has the largest national debt in the world.  So weather or not the UK’s economy may be improving in certain areas – we are running our debt further and further into the ground. This sort of behaviour results in bail outs. Unfortunately – there really isn’t much money to go around. Much of it has been used on the rest of Europe with many more states knocking on the International Momentary Fund’s door (IMF).  Cyprus struggled to get further bail-out funding from the IMF so instead helped themselves to people’s hard earned money.  Most of the banks that we trust to look after our money are all exposed to this house of cards phenomenon. All it takes is one card; one Lehman and the rest of us fall…

The printing of money both abroad and in the UK is reducing the strength of currency. It’s not that the price of gold has doubled over the last 5 years, it’s that it now takes twice the amount of currency to buy an ounce of gold. This principle goes back all the way to the 1920’s where an ounce of gold was $20. Today $20 can’t buy you much but an ounce of gold is worth just over £830. Can see how the value of paper money has disintegrated over time?

Rates on savings accounts are currently laughable. I think the highest I could get recently was 1.25% on NS&I. Inflation sits at around 6% so whichever way you work it out – you lose money by leaving your money in the bank.

The mere fact that you have money in your bank account or in an ISA means that you earning less than inflation and that your wealth is decomposing. So the opportunity cost of investing in gold is low.

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War and Terror

Sometimes there is no formula to war; they just happen and they can happen out of no-where. Let’s face it – Syria has been mistreating their people for decades and now the U.S is on the brink of intervening because chemical warfare was used instead of bullets. Yes – the Russians averted a last minute intervention by brokering a deal but many are of the opinion that this is a short-term solution to a long term problem. Gold jumped by 6% when it was announced that the U.S were going into Syria. Unfortunately there are many countries that are the same or worse – which means prospects for conflict will unfortunately, always remain high. Conflict within the Middle East including Iran is rife with many in the region stocking up on cheap gold as the only measure of financial protection.

Daniel Fisher

Daniel Fisher formed physical Gold in 2008, after working in the financial industry for 20 years. He spent much of that time working within the new issue fixed income business at a top tier US bank. In this role, he traded a large book of fixed income securities, raised capital for some of the largest government, financial, and corporate institutions in the world and advised the leading global institutional investors. Daniel is CeFA registered and is a member of the Institute of Financial Planning.

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