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Gold Investments vs Stocks

When building a robust portfolio, a mixture of gold and stocks is ideal. Different asset classes have different dynamics. Diversification is one of the key elements in building a strong portfolio and it’s always good to spread your risk. However, a question that gets asked all the time is: “Are gold investments better than stocks ”

A close look at the global capital markets

In 2008, the foundations of the global economy were shaken by the great recession, with the fall of Lehman Bros as a curtain-raiser. At the time, the recession was triggered by a debt crisis that spiralled out of control. 11 years on, it would appear that the global economy never recovered completely. At the time, Greece had debts to the tune of 140% of its GDP. Today, China’s debt levels are at 300% of its GDP. Similarly, Australia is reeling in the middle of a sub-prime housing debt crisis. Australian households have racked up debts that are 200% of income levels.

In addition to this brewing storm, the US and China are currently locked in an ugly trade war. While the US economy appears to be slowing down, the European economy is currently in shambles as a fall-out of the uncertainty created by Brexit. Clearly, it isn’t the right time to invest in stocks.

Gold investment vs stocks
Gold investments provide a safer option during times of market uncertainty

The inverse relationship between gold and the stock market

Stocks can post greater ROI than gold in a good market. Both investments can rise or fall in value. However, while stocks can fall to zero (if a company goes bankrupt), physical gold will always have its intrinsic value. The equity and gold market have track records for recording great returns over the medium and long term. While stocks can pay a dividend as well as an increase in value, those partaking in gold investing are looking purely for capital gain. Gold tends to rise when stocks fall, so the two have an inverse relationship.

Gold as a ‘safe haven’

Gold investors always study historical price charts PHYS01_Animated_Gif_2_MPUto understand the price movements of gold. Of course, the price of gold has never fallen to $0.00 and never will. Infact, at the height of the last recession in 2011, gold reached its highest peak of $1917.90 per ounce.

Indeed, gold is considered to be a safe haven by most investors who want to hedge their risks during a time of market turmoil. As the world hurtles forward towards another economic recession, we are witnessing similar trends in the price of gold. The current gold price is $1516.70 per ounce, which indicates that it is starting to peak again. Infact, the price of gold has never fallen below the thousand dollar mark in the last nine years. In the last year, the prices have gone up considerably. Not only does the yellow metal provide stability to your portfolio, but it also acts as an insurance against rough times. Moreover, the price of gold also beats inflation, which makes it an attractive asset class to invest in.

The tax advantages of investing in gold

All investment-grade gold is VAT free in the UK, which makes it even more attractive to investors. If you’re investing in gold coins that have a face value, it’s considered to be legal tender in the UK, and therefore, CGT exempt. So, along with its inherent advantages, gold investments also provide tax relief for you as an investor.

Contact Physical Gold to discuss your gold investments

If you need more information to draw a comparison between the global stock markets and gold, contact us today on (020) 7060 9992 and speak to a member of our investment team. We will be more than happy to guide you in making the right investments that can provide long-term profitability and strengthen your portfolio.

 

Image Credit: Slav4|Ariel Palmon


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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