Gold has a long history of retaining its value over time, making it an attractive investment option for those seeking a stable and reliable asset. In the past several decades, gold has exhibited a strong long-term performance, with its value increasing steadily over time.
For example, between 1970 and 2021, the price of gold increased from around $35 per ounce to over $1,700 per ounce, representing an average annual return of approximately 7.7%. Over the same period, the U.S. dollar experienced significant inflation, resulting in a decline in its purchasing power. In contrast, gold retained its value and even increased in value over time.
Furthermore, gold has historically been used as a store of value and a medium of exchange, dating back thousands of years to ancient civilizations. This track record of longevity and reliability has contributed to gold’s reputation as a safe haven asset and a hedge against inflation.
While gold prices can be volatile in the short term, over the long term, gold has a track record of maintaining its value and even increasing in value. As such, it may be a suitable investment option for those looking for a stable and reliable asset with a long-term perspective.
Current economic and geopolitical conditions may be favourable for gold investment for several reasons.
Here are a few examples:
Inflationary pressures: Inflation can erode the value of paper currency and reduce the purchasing power of investors’ money. Gold has historically been considered a hedge against inflation because it has maintained its value over time. Currently, many economists are predicting higher inflation rates due to increased government spending, supply chain disruptions, and other factors.
Geopolitical tensions: Gold has traditionally been seen as a safe haven asset during times of geopolitical uncertainty, as it tends to hold its value even when other assets, such as stocks or bonds, experience volatility. Current geopolitical tensions, such as trade disputes, political unrest, and conflicts, could lead investors to seek out gold as a safe haven asset.
Currency devaluation: When a currency is devalued, its value declines relative to other currencies, which can lead to inflation and higher prices. Gold can act as a hedge against currency devaluation, as it is valued in most currencies and tends to maintain its value when currencies weaken. In 2020, as the US dollar weakened against other currencies, gold prices increased by around 25%.
Evidence to support these claims can be found in the performance of gold prices over the past several decades, particularly during times of economic uncertainty and inflation. For example, during the global financial crisis of 2008, gold prices rose significantly, as did the demand for gold as a safe haven asset. Similarly, during periods of high inflation, such as the 1970s and early 1980s, gold prices increased significantly as investors sought a store of value that would retain its purchasing power. Additionally, the recent COVID-19 pandemic has led to increased government spending and low interest rates, both of which is leading to higher inflation and a weaker currency, further bolstering the case for gold investment.
Interest rates: Gold does not pay interest or dividends, so it is less affected by changes in interest rates compared to other asset classes. As a result, investors may turn to gold as an alternative investment option.
These statistics and trends demonstrate the potential benefits of including gold as a diversification tool within a portfolio, particularly during periods of market volatility and inflationary pressures. Additionally, gold’s long-term performance demonstrates its potential to retain its value and provide strong returns over time.