What are the benefits of gold?
Gold is wonderful, whatever you use it for. Let’s be honest you can’t own too much gold! So why is gold so beneficial? We pondered this question and have provided a detailed explanation of the many and varied benefits of gold on this page. There is a lot to discuss so we felt an infographic was ideal, this visual format conveys a lot of information in an easy to consume manner.
This infographic can be found immediately below. Underneath the infographic we go into more detail to exactly why gold is so beneficial. Enjoy!
You can see the full sized infographic here.
Gold has endured centuries as a mark of wealth and the many benefits of gold begin with its simplicity. It is indestructible, relatively scarce and cannot be manufactured. It is a refreshing alternative to the complex investment products in the headlines today and is easy to both buy and sell. Infact gold is so simple it really is the one true global currency, that can be traded everywhere worldwide.
The gold price is still considerably lower than its previous high, back in 2011/12. This provides the opportunity to buy significantly more gold now, than 5 years ago, for the same amount of money.
There’s a finite supply of gold in the world, which creates exponential price rises when demand increases. Production cannot simply rise to meet an increased demand, so the supply/demand dynamic naturally drive prices higher. This also reduces the risk of devaluation, as lower prices then quickly attract more, new demand, which will once again fuel price increases.
Provides Portfolio Balance
One of the most popular benefits of gold is that it’s deemed to be a safe product, which investors have always turned to, in times of economic downturn. Its performance is apolitical and therefore independent of any one country’s policy agenda. It’s therefore perceived to be a hedge for anyone at risk of losses to their property value, ISA, stock portfolio, bonds, pension and also cash due to the effects of rampant inflation.
What can we learn?
History tells us that the financial world moves in cycles. In a period when one asset class performs well, another may yield losses. It is impossible, and far too risky, to try to call these exact cycles, by placing all your hard-earned money into one investment area. Instead, any Independent Financial Advisor (IFA) will recommend spreading the risk across the various asset classes, shifting the percentage of each holding according to the current economic conditions.
This way, an investor always owns a variety of assets, so any falls in one area will hopefully be offset with a different asset, producing good returns over the mid-term and maintaining balance. Owning physical gold actually reduces the overall volatility of a portfolio. In these current, uncertain times, experts believe up to 20% of holdings should be in gold, with perhaps 5-15% in better economic times.
No Counterparty Risk
In its physical form, the holder has no risk to any counterparty. This is particularly relevant in today’s new financial world, where money is no longer even safe in a bank account. It also avoids the counterparty exposure that exists with investments in gold stocks, futures and options, which all have potential fraud risks.
There are also great benefits of gold in its physical form. There’s no VAT to be paid on investment gold. Also, unlike many other investments, there’s no Capital Gains Tax to pay on profits of UK Sovereign and Britannia coins, as they’re deemed to be legal tender. Tax relief of up to 45% is available on qualifying gold bars as part of a pension.
Gold is an internationally recognised, and trusted, form of exchange and has been since ancient times. Therefore, the worldwide network of dealers can provide prices 24 hours a day for both coins and bars. In order to enhance liquidity, investors should invest in smaller and flatter gold bars. These can be easily sold to fuel short term-liquidity, which may be required for investments in other asset classes. For example, a one ounce American Gold Eagle coin is a very liquid asset as there are usually a lot of buyers and it is easy to sell.
That’s not all….
While many people consider gold as a commodity, in recent times it is being labelled as a currency, as well as a hedge. While the popularity of stock markets has increased manifold, markets are very sensitive to every kind of macro-economic impact. Markets react to global incidents, such as political instability, terrorist attacks, etc. It is often said that markets defy logic at times and move only on emotion. Gold has a low correlation with the stock market and is therefore somehow insulated against market movements. True, gold can never go up in a sudden blaze of glory like a technology stock, but it is this lack of volatility and steady growth, coupled with liquidity that makes gold attractive to investors.
More than just a valuable investment, gold coins are part of the nation’s historical heritage and can be both beautiful and collectable. In fact, many gold investors and collectors take great pride in their coin portfolios, often preserving them within their families for several generations. This habit also contributes to a limited market supply, creating a numismatic premium and once again affecting gold’s value!
Beat cash in the bank
Investors worldwide are nervous about a possible new global banking crisis. The very fundamentals of banking have changed forever, with the perception of strength and safety now a thing of the past.
Several of our large high street banks are now partially nationalised. With interest rates and therefore savings rates, at all time lows, returns on bank deposits are negligible or even negative. Simply saving money in deposits is no longer the safe haven it once was.
What’s the story?
Trust and faith in numerous major world currencies are at an all-time low. Concerned savers and investors are seeking a new, more reliable store of wealth and many have turned to gold. Simply leaving your savings in the bank and burying your head in the sand will not safeguard the value of your money. Proactive savers are now moving some of their money into gold, to reduce their exposure to traditional currencies.
Yet another factor to consider is the effects of inflation. Inflation slowly, but surely erodes the value of cash in the bank. Interest rates are at an all-time low. They have remained stagnant for the longest period in the UK’s financial history, as the economy struggles to stabilise. It is likely to remain that way for some time now as the Bank of England staves off imminent interest rate hikes year after year. The UK’s GDP growth is a dismal 0.4% and the economic uncertainty surrounding Brexit does little to help the situation. In this scenario of doom and gloom, inflation will eventually erode cash in the bank. Gold, on the other hand, provides investors with an excellent avenue to hedge risks associated with the slowdown of the economy. The Spot price of gold has steadily increased over the last ten years and it makes sense for investors to invest more in gold to escape the doldrums of the current economic situation. Moreover, there are fears of the US dollar performing badly in the coming year against the Euro and the Japanese Yen. Should such a scenario occur, we would surely witness a gold rally in 2018 as investors scramble to pull out of currencies and park their money in alternative asset classes. Gold, given its stability, would be the obvious choice, as would silver, which tends to mirror gold price movements.
Common customer questions and our expert answers
Gold can provide many benefits for investors, as well as offering obvious appeal as jewellery.
As a safe haven asset, gold tends to perform well in market uncertainty, so it provides unique diversification. In the form of gold coins and bars, gold holds an intrinsic value based on supply and demand, is VAT exempt and British coins are Capital Gains Tax free.
Investing in gold mining shares offers the chance of greater returns than simply buying physical gold or gold funds. If the particular mining company outperforms its sector due to good management, cost controls or new discoveries, then price rises can be significant. You still benefit from the shares being linked to the underlying gold price. Obviously, gold mining stocks are also riskier than simply buying gold bars.
Gold has been adorned for centuries due to its rarity and beauty. The main benefit is that wearing gold demonstrates a degree of wealth, status and power. As a relatively soft metal, gold can be shaped into wonderful jewellery, with the wearer benefitting from expressing themselves with unique designs.
The benefit of the gold standard is to provide collateral to a currency. Because the gold back’s the money’s worth, and gold has a very limited supply, stimulus programs such as Quantitative Easing are very limited, protecting the economy from inflation. It provides a financial system with stability and discourages excessive government debt.
Consuming edible gold leaf and dust can provide anti-inflammatory health benefits to the consumer, can be used in surgery to repair nerves and blood vessels, and used in dentistry for crowns and bridges. Obviously, gold also offers a psychological health benefit of owning something valuable and has even been used to treat depression and migraines.
In recent years, platinum has become cheaper than gold per ounce, so now offers the benefit of value. For jewellery, it is denser, so requires more metal for each design than gold. It is the preferred choice for resilience but gold can be more flexible for unique pieces. As an investment, the platinum market is less established, so is less liquid with fewer coin and bar choices.
Contacting Physical Gold
We hope very much that you have enjoyed our infographic and supporting content relating to the benefits of gold. We know there is a lot to contemplate, so if you’d like a friendly chat about the topic why not give us a call on 020 7060 9992 (Monday – Friday)? We can offer friendly advice on all aspects of gold investment and what would be the best approach for you and your family based on your circumstances. Our full contact information is available here.