Why Buy Gold? And Where Can You Buy It?
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Why Buy Gold?
And Where Can You Buy It?
Video Length 55 Minutes
Why Invest In Gold?
Gold is a unique asset: highly liquid, yet scarce; it’s a luxury good as much as an investment. Gold is no one’s liability and carries no counterparty risk. As such, it can play a fundamental role in an investment portfolio. Gold acts as a diversifier and a vehicle to mitigate losses in times of market stress.
It can serve as a hedge against inflation and currency risk.Key facts that investors should know:
Gold is one of the most effective diversifiers
Gold provides competitive returns compared to other major financial assets
Gold offers downside protection and positive performance
Over time, fiat currencies – including the US dollar – tend to fall in value against gold.
The combination of these factors means that adding gold to a portfolio can enhance risk-adjusted returns.
But how much gold should investors add to achieve the maximum benefit?
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Portfolio allocation analysis (based on the seminal work of Richard and Robert Michaud) indicates that investors who hold between 2% to 10% of their portfolio in gold can significantly improve performance.
This is also true even when assuming a conservative average annual gold return of a modest 2% to 4% – well below its actual, long-term historical performance.
Buying Physical Gold
Small bars and coins accounted for approximately two-thirds of annual investment gold demand and around one quarter of global gold demand over the past decade. Demand for bars and coins has quadrupled since the early 2000s, and the trend covers both the East and the West. New markets, like China, have been established and old markets, like Europe, have reemerged. Bars and coins come in many denominations and measures of gold content (also called fineness). Fineness is either measured in carats (the highest being 24 carats) or in parts of gold per thousands (usually 995, 999, or 999.9 parts per thousand).
Coins are commonly produced in denominations of 1/20, 1/10, ¼, ½, and one troy ounce. Bars can be purchased in 1, 10, 20, 50, 100, and 1,000 gram denominations as well as 1, 10, and 100 troy ounces. Central banks, many gold-backed ETFs and other large institutions rely instead on the London Good Delivery (LGD) bar.
The LGD bar is the standard gold bar used for clearing in London and weighs approximately 400 troy ounces. When buying gold in these forms, investors pay a premium over the spot gold price on bars and coins. Generally, the smaller the coin, bar or size of the investment, the larger the premium per ounce. Owning physical bullion may involve additional costs beyond the expense of the gold, including insurance and storage. Care and diligence are necessary when purchasing physical gold and the authenticity of the gold should be verified by the assay mark. Gold should be purchased from a bank or reputable dealer.
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