Why consider investing in Gold? Updated 2018

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.

Now’s the time….

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…

Paper money is becoming worthless

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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Cryptocurrencies and gold

The rise of cryptocurrencies provided investors with an avenue to get quick returns within a short time span. However, going by the performance of Bitcoin and other cryptos in the last couple of months, it would appear that cryptocurrencies are entering a bearish phase. Unacceptance of cryptocurrencies as legal tender and the crackdown on exchanges in many countries has been bad news overall for investors of Bitcoin and the like. Add the falling US Dollar and Brexit woes to this mix and you have several compelling reasons why investors should turn to gold. Within the last month and a half itself, gold has been on the rise, briefly surpassing the 2017 high point of $1,359. Overall, many analysts have predicted that 2018 is likely to be a positive year for gold.

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.

Political tensions in the Middle East

Last year, in 2017 we saw gold jump to a high price in two months as conflict between Israel and the Hezbollah escalated. Tensions in the region caused crude oil to jump above $76 a barrel, causing investors to start buying gold to hedge against global uncertainty and inflation.

Infact, historically we have seen that any event that brings international oil prices under pressure, automatically turns positive for gold.

What’s the story now?

In 2018, there is no expectation of improvement in the political situation in the Middle East. There is little hope for a political resolution to the Syrian conflict, as the weakened Syrian government forces have been drawn into a stalemate in their power struggle against opposition forces, who refuse to concede their hard-fought autonomous positions. Meanwhile, the IS Caliphate has lost 40% of their control over Iraqi territories and 70% in Syria during 2017. With the Caliphate reeling under the threat of oblivion, the risk of insurgents continuing terrorist activities globally as a backlash has gone up. Iraq has become another Afghanistan and 2018 predictions believe that continued insurgency against the government is likely to continue, as a significant number of IS fighters are in Iraq.

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Tensions in the Middle East will impact the price of gold

Yet another concern is the declining relationship between the Saudis and Iran. Of course, the Trump regime along with its western allies support the Saudis, who believe that a principal factor in the war in Yemen is Iranian support for the Houthi rebels. Needless to say, all of this does not bode well for Iran’s relationship with the west. With the proxy war in the Middle East reaching stalemate on two fronts, there is little expectation for a quick political solution in the Middle East in 2018 and this is likely to put continued pressure on global oil prices and create a domino effect on other industries, as global economic woes continue.

The impact of international conflict on gold

Now, let us consider the behaviour of gold prices historically during times of international crisis. The Iranian revolution happened in 1978 and 1979 witnessed the Iranian hostage crisis, the Iran-Iraq war and the Russian invasion of Afghanistan. Gold prices reacted strongly, rising 23% in 1977 as a preamble to the crisis. During the crisis itself, gold prices rose 37% in 1978, while 1979 witnessed gold prices skyrocketing to a whopping 126%. Similarly, Iraq’s invasion of Kuwait in 1990, the September 11, 2001, terrorist attack and the US invasion of Iraq in 2003 sent gold prices up. Therefore, there can be no doubt in our minds that the threat of global political instability and war could well be the most important reason to invest in gold now to hedge against economic risks, as well as take advantage of the expected escalation in international gold prices.

Invest in gold with Physical Gold

So, are you looking to invest in gold? Our investment advisors can guide you on gold investments and answer your queries about the market. Call us on 020 7060 9992 to discuss your requirements.

Image Credit: Heather Truett


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