Any investor can ask himself this question when evaluating the different and increasingly varied investment options that are presented to him. Given the avalanche of sophisticated investment vehicles, digital assets, cryptocurrencies… gold, that precious metal that has been with us for centuries, still has a lot to say. In this post we are going to explain what gold can do for investors.
Gold is a very curious metal: it is extremely heavy, although soft; inert, but with an almost irresistible shine; therefore, it is the preferred material for jewelry. It is also very curious when it comes to investment: there is no topic that divides investment professionals more than gold” .
Indeed, gold as an investment asset generates a lively debate between those who defend it as the perfect refuge asset, and those who accuse it of not offering returns and of being a ‘barbaric relic’.
Objectively, however, the precious metal still has a lot to say in the realm of investment, many centuries after it began to be used as a store of value and a means of payment.
Criticisms And Advantages
Some of the usual criticisms from ‘deniers’ are that gold offers no returns, that it is very expensive to mine, has few uses outside of jewelery and its prices fluctuate widely. Which is true.
For their part, gold supporters argue that, over time, the price of gold ends up reflecting the cost of producing it, which, in turn, tends to reflect inflation.
It also has other important advantages:
• It has been used as a form of money since time immemorial.
• It is in semi-rigid supply , which means that central banks have no power to devalue it.
• It is the greatest monetary power, since it lacks counterparty risk , having value in itself.
• It cannot be created out of thin air , like fiat money.
• It maintains its value over time, regardless of what is happening around it.
As Ferguson’s post explains, the paradox of gold is that there are apparently no reasons why it has been a constant throughout the world for millennia, even after the advent of financial engineering. A constant that protects against any form of risk and uncertainty.
A highly liquid asset
One of the keys why gold is still relevant so many centuries later is because it is an asset that has enormous liquidity . The gold market is the third largest financial market in the world, with daily transactions worth billions of dollars.
The most important thing is that not only does gold move in the large international financial centers, but countless transactions are also recorded, even in the smallest cities, through the activity of jewelers or pawnshops.
Hence one of its main differences with the large investment assets that compete with it: to buy shares, bonds or trade titles, it is necessary to be in a financial center. On the other hand, gold can be traded anywhere in the world , because its value is recognized and its price is established.
Gold protects against any risk
Financial engineering has created in recent years multiple investment vehicles, increasingly sophisticated, usually with high volatility and risk. For this reason, gold is a perfect complement in investment portfolios that are too exposed to risk, as an element of diversification.
This is possible thanks to the fact that it is one of the few investment assets that have no correlation with the others and, therefore, maintains its value while that of the others falls.
It is the easiest investment
Apart from all of the above, gold is characterized by its enormous simplicity : it is what it is, a valuable asset, with immediate liquidity and value recognized throughout the world.
New forms of investment, such as cryptocurrencies, may have reduced some of its chances of revaluation, by attracting numerous investors, but the truth is that, while there are thousands of different cryptocurrencies, there is only one gold.
All of these digital currencies are not tied to anything and their value is simply based on the assumption that someone is always interested in buying them. But behind them there is nothing, as demonstrated when the bitcoin price collapsed due to criticism from Elon Musk or the ban by China.
Faced with this, gold is a universal asset, appreciated in all cultures and that forms part of the strategic reserves of countries, due to its ability to maintain its value over time.
If it is useful in this sense for countries, how much more will it be to shore up our personal finances and our future.
