Gold is the noblest of all precious metals. It is considered imperishable and had a great importance early in human history as a means of payment and a safe store of value. Even in today’s times, gold is the safe haven for many when crises and inflation threaten the financial markets. But how safe is the investment in gold really?
Reasons to invest in gold
Probably gold will never be completely worthless, because it will always have a certain material value. Therefore, the precious metal has always been a valuable commodity.
Globally, gold reserves are limited. So you can’t multiply it at will, and the past shows that gold has always weathered depressions, wars and currency reforms well. In this respect, gold is a safe crisis currency.
Currency risk and price fluctuations also for gold
Despite its limited availability and the fact that it is always a safe asset, gold also carries a certain currency risk. The precious metal is traded in US dollars. If the U.S. dollar loses value, this also affects the price of the precious metal gold. Moreover, the trading value of gold, like any other trading value, is subject to supply and demand.
If we look at the last 45 years alone, we see that the gold price has been subject to sometimes violent fluctuations. For example, gold reached record prices in the years from 1979 to 1983 and then again from 2010 onwards, and more recently the Corona pandemic also drove the price of gold up sharply, but also caused it to fall sharply at times.
Meanwhile, from 1987 to 1999, the price of gold hit a huge low and the gold price fell by about half.
Storage and yield
Anyone who wants to invest in gold must inevitably also deal with the storage of the precious metal. Both storage at home and in a locker incur costs. At home there is a risk of theft, so the gold must be insured. A safe deposit box at the bank also incurs regular costs, which in the case of gold are not offset by regularly flowing returns through interest or dividends.
Is investing in gold safe and sensible?
Both questions can be answered with a clear “yes”, but only if a certain risk diversification is taken into account when investing and gold is not used as an individual investment.
If we look at the price development of gold and shares in earlier crises, we see that price losses in shares or other financial investments in times of crisis could certainly be compensated with gold. However, due to the enormous price fluctuations in gold, the reverse can also occur.
Financial experts therefore advise to invest only a part of the assets in gold and to pay attention to a balanced risk diversification in the overall investment.