The Value of Gold Investment

egyptian-gold-coin

Importance of Gold in Ancient Civilizations

Since the beginning of recorded history civilization has regarded gold to be a symbol of status and wealth. It has been used as an enduring symbol to express some of the most important rituals and stories of a culture. In Ancient Egypt, for example, it was used to decorate the tombs of pharaohs as well as to make currency. Gold and electrum (an alloy of gold and silver) were also worn by the Egyptian people in jewellery. Through the years and as civilization has developed it has taken on different roles, but for as long as it has been mined, gold has always held a prominent place in society.

gold-mine

Current Mining Capacity

 Throughout all of human history it is estimated that 180,000 tons of gold have been mined. Though this might sound like a lot, it is a relatively small amount when you consider that all of that gold would fit into a cube of a little over 20 meters. Currently, the worldwide mining capacity is at around 2,500 tons of gold every year. Of this amount, a staggering 2,000 tons is used for jewellery with a small amount of this being used in dentistry. That leaves only around 500 tons of gold per annum earmarked for bullion and investment.

Gold as a Safe-Haven

In modern times gold has been used in the form of coins to build confidence in the currency. When the gold standard was abandoned in the early 1970s, it became a powerful investment vehicle.

gold-bars

Today, many people invest in gold as a safe-haven asset – a hedge against inflation. As the cost of living rises, so does the price of gold. Further to this, other variables that gold reacts to include interest rates, inflation, The U.S. Dollar and other currencies, political news, other commodities, and so on. For the amateur investor, here are a few points to pay attention to when considering gold:

  • Gold does not gain interest, so if interest rates are lower than the rate of inflation the price of gold will naturally rise, and vice versa.
  • Gold is dollar-denominated, so if the price of gold rises against the dollar it becomes more expensive to buyers around the world, which may curb demand for the commodity.
  • Gold is an asset that you can physically hold as an investment. Sure, there are gold stocks and mining companies that you can invest in, but you can also hold the real thing if you wish. It is also a very liquid asset.

silver-bars

Investment in Other Precious Metals

In addition to gold, there might be an appeal to invest in other precious metals – mainly silver, platinum, and palladium. Unlike gold, these alternative metals are often used for industrial purposes and, therefore, have a stronger positive correlation to the economy. They also have a very different relationship with the markets than gold does. Take platinum for example – it is a much rarer metal than gold and is much more expensive to mine, so it generally trades at a higher price than gold. Today, however, gold is at approximately 30% higher than platinum – £1,019 per ounce compared to £780 per ounce. For the casual investor who is considering dabbling in alternative precious metals, it is important to research the economic relationships because trading platinum, silver, and palladium – as these metals certainly have greater risk attached to them than that of gold trading.

price-of-gold-chart

Source: Lenntech

With all investments there is certainly risk involved, but having some gold in your portfolio is a great way to add diversification to your investment book, whether in physical bullion or mining stocks. Unlike coins, paper currency or other assets, gold has maintained its value over time and has acted as a security in times of economic volatility. For this reason, many people see the commodity as a way to preserve wealth that can be passed on to the next generation.

Related Blogs:
The True Value of an Olympic Medal
Four Precious Metals Used in Jewellery (that aren’t gold or silver…)
Revival Jewels for the 21st Century Academy Awards and Golden Globes 2016

About the Author:

Karina is the Director of the Jewelry Department at Borro Private Finance.