Fri. Oct 30th, 2020

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GOLD- An Investing ‘Safe Haven’

3 min read
Gold bullion

Homer called gold ‘the glory of the immortals”. For Incas, gold was the sweat of the sum. Egyptians believe that gold supports them after the life. For thousands of year, gold has tempted explorers, supported empires and has become a market barometer. Its value stems from its rarity. A direct link between gold and currency emerged in 550 BC, when the first gold coin was used in Libya. In the 19th century currency around the world was fixed to gold. This lasted till 1971 when President Nixon announced that the US would no longer exchange dollars for gold at a set price.

For investors, gold still glitters in times of crisis. Its value peaked $1900 an ounce in 2011 and demand often spikes at times of market stress as investors look for a safe haven. Despite the allure, gold is not immune to economic reality.

The thing about gold is that, it has a long term store value. Macroeconomic analysts often identify gold as ‘Purchasing Power Parity’. Gold is a way of anchoring into valley on an international basis. Therefore, it is a safe haven for people who are particularly suffering from currency crisis. Gold is traditionally used as a safe haven destination in times of uncertainty.

The price of gold is normally calculated in dollars and moves in the opposite direction to the greenback. This is due to if the US currency gains in value, then it takes lesser dollar to purchase an ounce of gold. The price of gold wrecked in March as the dollar bestirred. Due to this, the spot gold price (the cost at which the precious metal can be instantly traded) fell below $1500 per ounce for the first time in 2020.

WAYS TO INVEST:

People can invest in physical gold in the form of coins, bars or jewellery. To store it safely, and to find a market to trade it through, is costly.

Another way of investing gold is buying shares of gold mining companies. This can be acted as a leveraged play on gold if its price goes up. If the profits of the mining company go up this would potentially boost returns.

One of the most trusted ways to invest in gold is Exchange Traded Commodities (ETCs). They are an investment vehicle traded in shares on an exchange, which tracks the elemental pricing index of that commodity.

In the meantime, funds can associated these different types of exposure to gold and therefore, making it perhaps the best way to an assorted solution.

 

 

Gold tends to recover within the days and weeks afterward and in general goes to new horizons, exclusively if equities remain depressed. If we go through the recessions, globally we will witness selling of gold in order to meet additional margin calls.

Investors generally buy or invest in gold for diversity from standard assets inclusive of stocks, bonds, real estate and private equity. Investors are also attracted towards gold because it is liquid, easy to buy and sell.

The fact that gold is an anonymous, portable currency, that holds its value over time and acceptable virtually everywhere makes it stand out from the crowd.

 

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