Gold has been shining brightly for the past few months. It even set a new all-time high this summer at over $2,000 an ounce. Can investing in gold in 2020 still make sense? Is gold a good investment? Now more than ever! Without beating around the bush, we finally give you the 9 good reasons to invest in gold!
- Gold is a perennial safe haven
- Gold is a portfolio diversification asset
- Gold is a real alternative to fiat money
- Gold a stable and low volatile asset
- The price of gold is still undervalued
- Gold is nobody’s debt
- Central banks are buying more and more gold
- Global demand for gold is exploding
- A long-term uptrend
1. Gold is a perennial safe haven
Did you know? Gold is the only form of money that has not been destroyed for 5,000 years. For thousands of years, gold has become a commodity and a highly sought-after store of value.
A safe haven is defined as an investment whose value is maintained or even increased in the event of a financial crisis. Gold is the embodiment of a safe haven.
Take for example the crisis linked to COVID-19, between January 1, 2020 and August 10, 2020, the price of gold in euros experienced an increase in value of 27.4%. Since gold is independent of other assets that can collapse in times of economic and political instability, investing in gold is a reassuring investment, ideal for diversify your savings.
2. Gold is a portfolio diversification asset
You certainly know the expression “You shouldn’t put all your eggs in one basket”. The key to diversification is to find investments that are not closely correlated to each other; gold has historically been negatively correlated with stocks and other financial instruments. Recent history proves this: the 1970s and the crisis of 2008 saw gold prices soar when stocks were at their lowest. Investing in physical gold will not save you money, however it will protect you from the invisible tax of inflation, while ensuring the maintenance of your purchasing power and smoothing out exchange rate variations.
3. Gold is a real alternative to fiat money
Investing in gold means making sure that you use a means of payment that does not lose its value. Can the same be said about fiat currencies? Only a few decades old, they are gradually losing their value, eaten away by inflation.
For gold, it’s completely the opposite. In fact, between 1998 and 2008, when the value of the dollar weakened enormously against other currencies, gold climbed 212%. What could we say about the Bolivar in Venezuela?
In August 2018, a roll of toilet paper cost 2,600,000 bolivars or $0.40.The bills became so worthless that they were turned into wallets, belts and even purses.
4. Gold a stable and low volatile asset
The principle of an asset like gold is long-term stability. So, despite changes in the world and in technology over the centuries, a cow can still be bought for the price of an ounce of gold.
Gold is less volatile than most individual commodities and general commodity indices. It is also less volatile than stocks, whether individual stocks or industrial sector stocks.
5. The price of gold is still undervalued
The Dow Jones gold ratio is used to assess the valuation level of the price of gold over the long term. Over the past 100 years, the average Dow to Gold ratio was 10. At present in September 2020, the ratio is 15. In July 1999, the Dow to Gold ratio peaked at 45: this meant that only one Dow Jones share would buy 45 ounces of gold!
The world’s gold reserves are not inexhaustible. According to the World Gold Council, all the gold produced since the dawn of time represents a cube of 20 m per side or 8,000 m3.
The scarcity of gold is one of the reasons for its value. Gold will become increasingly scarce over the next few years. The reason? Exploration budgets are constantly being reduced, discoveries are fewer and fewer, and they involve less rich veins than in the past.
6. Gold is nobody’s debt
The majority of the financial investments available to us are liabilities – that is the debt – of someone else. Bonds are, in principle, the debt of an issuer, state or company, which can default.
Your current account is a liability of your bank, and even your €50 note is a liability of the European Central Bank! Investing in gold is to invest in an asset that is not the liability of anyone, and its value cannot be influenced by a supervisory authority. It is impossible to say that gold is worth 30% less in one fell swoop. This is notably one of the primary reasons that push central banks to increase their gold reserves: these assets are therefore not subject to the whims of another central bank, itself potentially subject to political forces…
7. Central banks are buying more and more gold
According to the 2020 Central Bank Gold Reserves survey, 20% of the global central banks intend to increase their gold reserves over the next 12 months, up from just 8% in 2019. This increase is all the more remarkable given that central bank gold purchases have reached record levels in recent years, adding around 650 tonnes in 2019 alone.
The reasons? 88% of central banks say negative interest rates are a relevant factor for their reserve management decisions. In addition, 79% consider the performance of gold in times of crisis to be an important reason to own gold, up from 59% in 2019.
8. Global demand for gold is exploding
Another parameter to consider is the growing demand for gold in the world. The figures regularly published by the World Gold Council show an increasing year-over-year rise in the demand for gold and silver, both for investors and for the industry.
India and China are by far the largest markets in terms of volume of gold jewelry purchases, together accounting for more than 50% of current global demand. India is one of the biggest markets for gold. The precious metal plays a central role in the country’s culture, considered a store of value, a symbol of wealth and status, and a fundamental part of many rituals.
9. A long-term uptrend
Over the past 20 years, the prices of an ounce of gold, a gold bar or some investment coins, like the Napoleon, have steadily climbed. There has been an increase of 400% between 2000 and 2020 for the price of gold in euros! In the 14th edition of the In Gold We Trust report, Ronald-Peter Stöferle and Mark J. Valek confirm that gold is in the early stages of a new bull market, and announce the dawning of the golden decade.