There are many benefits of owning physical gold as a form of investment. We have summarised these into our comprehensive guide providing supporting descriptions for fourteen of the main benefits of gold. These are supplied in alphabetical order and wherever possible there are links to related articles and data/statistics to back-up assertions.
What is Physical Gold?
By ‘physical gold’ we are referring to gold which is in its physical form, i.e. gold bullion or coins rather than for example a gold ETF (exchange traded fund).
Balanced investment portfolio
A major benefit of gold investment is in realising a balanced investment portfolio. Some financial investments are high risk (e.g. IPOs, venture capital, high yield bonds, foreign currency trading). For investors with a portfolio it’s good to have a balanced set of investments covering all eventualities and targeting a medium level of return at a medium level of risk. As a short-term investment gold can be quite volatile, so look at gold as a medium to long term investment.
Easy to trade
Gold is very easy to trade (both buying and selling) and for private owners the market price will not move irrespective of how much gold they buy or sell. The gold spot price is continuously updated so it’s not difficult for investors to know what the price will be. When selling gold, the cash realised will reach bank accounts very quickly unlike other forms of investments.
Finite supply
Gold is an investment with a finite supply. Estimates vary but it is estimated that there has been around 170,000 tonnes of gold mined since time began. OK, so more could be mined, in fact around 3,100 tonnes were mined globally in 2016, but the fact is that gold has a finite supply and is perceived as rare.
Global currency
As mentioned later, gold is a liquid form of asset. So much so in fact that gold can be considered a global currency. There is a global published market price (“the spot price”), which is comparable to the exchange rates for currencies.
Unlike currencies, there is no exchange rate conversion fee (e.g. cost of converting dollars to euros). A bar of gold in the US is worth the same in Australia, France, China and the UK for example, as it will be valued by the gold market spot price.
Gold can very much be considered a form of currency
Investing in gold has the benefits of a currency without negative aspects such as currency devaluation by a government. This can devalue an investor’s cash assets over night through no fault of their own.
Growing demand
With demand for gold from markets such as investment, coin production, dentistry, medicine, electronics, aerospace, jewellery and medals there is a buoyant demand for gold. This demand is great for gold owners as the commodity spot price of gold (as with all products) will largely be determined by supplier demand.
Hedging tool
A primary reason many investors (including investment funds and governments) buy gold is to use as a hedging tool. There are various ways that gold offers hedge benefits. These include hedging against banking system collapse, currency devaluation and a stock market crash. In times of known economic uncertainty gold tends to perform well as concerned investors divert funds into a “safe asset”.
Historical performance
One of the first rules of investment is that historic performance is no guarantee of future performance. This is certainly true, but historically good performance is a comfort factor for sure! Historically gold has performed well as illustrated in the chart below, which shows gold prices from 1960 through until 2017.
Historic gold prices from 1960 to 2017
Investors of gold in 1960 would have seen a six-fold increase in price over the period, which is far above inflation.
Investing in gold as a hedge against inflation is a popular benefit for investors, who perceive gold as a mechanism to achieve medium to long term capital gains.
Hobby and collectability
Most investments can’t become a hobby, but gold investment can through coin collecting (known as numismatics). Think of investments such as shares, savings accounts or pension pots – none of them have any intrinsic appeal or collector interest. With gold coins investors can establish a collection, the value of which will rise according to the gold market spot price and a premium associated with the collectability of each coin.
Indestructible
Gold is an indestructible/non-perishable form of asset. It has existed throughout the history of man and does not corrode, rust or tarnish. Unlike other forms of assets (e.g. cash) gold can’t be destroyed by fire. Gold can be melted down and recycled, (which is another advantage), but this is not destruction it’s just using the gold for another purpose.
Investing in gold bars is a popular way of owning gold
Liquidity
Gold is a highly liquid form of asset, meaning it can be converted into cash quickly compared to other investments (e.g. property or notice required savings accounts). Investor never know what might happen in the future, so to have some of their investments in a liquid asset can prove advantageous if rapid access to cash is needed.
No counterparty risks
Numerous investments are paper-based and carry with them moderate to severe third-party risks. Physical gold has very minimal counterparty risk, this is not to be confused with gold ETFs (electronically traded funds), which definitely do.
Since fraud scandals such as Enron and Lehman Brothers, counterparty risk has received much publicity, but this risk can be avoided by holding physical gold yourself.
Physical / tactile nature
One benefit of gold that some investors love is touching it, they enjoy the tactile benefits of gold bars and coins. Owners can enjoy an investment in gold and see it in front of their own eyes. This is potentially more fulfilling than a share certificate and/or a pension statement.
Benefits of Gold infographic from Physical Gold
Safe investment
We have already mentioned that gold is excellent to include in a balanced investment portfolio. A primary reason for this is that it is “safe”. Viewed over a medium to long term perspective, capital gains in gold price are attainable. In times of economic uncertainty, the gold price is likely to perform well, whilst other assets tend to struggle.
Tax benefits and advantages
In some countries there can be tax benefits and advantages of investing in gold. As these vary from country to country it’s impractical to list specifics here. The best approach to learn if tax benefits apply in your country is to speak to a Financial Advisor, who will be able to advise on applicable tax incentives.
We hope very much that you have enjoyed these 14 amazing benefits of gold article and that it gives you all the information you need to consider making your own investment.