WHY INVEST IN GOLD?

Gold has been utilized for more than the 5,000 years of history. It is a universal commodity that is valuable all over the world. Investors must look at gold from the portfolio diversification point of view. It is an excellent hedge against inflation and the many problems in both global and domestic U.S economies.

Investors have long regarded gold as a good protection against depreciation in a currency’s value both internally and externally. Gold is widely considered to be a particularly effective hedge against fluctuations in the U.S. dollar, the world’s main trading currency.

The yellow metal and the dollar were found to be negatively correlated. According to research, since the seventies where there was a considerable number of turbulence, gold was consistently a good protection against this instability and the exchange fluctuations it caused.

PORTFOLIO DIVERSIFICATION

In most investment portfolios, stocks and bonds are the traditional financial assets that most will hold. With portfolio diversification, it offers added protection against fluctuations in the value of any assets. Gold is a foundation asset within any long term savings or investment portfolio.

INFLATION HEDGE

Market cycles come and go, but over the long term, gold retains its purchasing power. Gold’s value, in terms of the real goods and services that it can buy, has remained remarkably stable for centuries. In contrast, the purchasing power of many currencies has generally declined, due to the most part to the rising price of goods and services. Hence investors often rely on gold to counter the effects of inflation and currency fluctuations.

RISK MANAGEMENT

Gold is significantly less volatile than most commodities and many equity indices. It tends to behave more like a currency. Assets with low volatility will help to reduce overall risk in your portfolio, adding a beneficial effect on expected returns. Gold also helps to manage risk more effectively by protecting against infrequent or unlikely but consequential negative events, often refer to as tail risks. International events are the chief drivers of gold price in dollar terms.

DEMAND AND SUPPLY

The price of gold tracks the shifting balance of supply and demand. Long lead times in gold mining means production of gold is relatively inelastic, regardless of increase in demand. That is why the rally in gold price since 2011 has not engendered a meaningful increase in gold production.

Demand for gold has shown substantial growth recently, due at least in part to rising income levels in key markets such as China and India. These supply and demand factors have laid the foundations for gold’s most positive outlook in over a quarter of a century.

Jewellery demand accounts for about 45% of the world gold demand. Not only regarded for its value and beauty but also as a universal status. India and China are the two largest markets for gold jewellery, together representing over half of global demand in 2012. These countries have been buying for cultural reasons as it is considered auspicious to buy gold at key festivals and events. People see gold as a way to pass on and preserve their wealth from one generation to the next. Gold is regarded as a kind of portable investment as you can carry them around and sell whenever and wherever you wish. It is also a widely accepted commodity and prices are almost equal around the world. If you want to sell your gold you can easily do so without getting into much hassle.

RISK MANAGEMENT

Gold has unique qualities that enhance risk management and capital preservation for institutional and private investors across the globe. Research1 has shown that even a modest allocation to gold makes a valuable contribution to the performance of a portfolio by protecting against downside risk without reducing long term returns. These qualities are considered to be particularly important during periods of financial stress. However, gold's effectiveness in stabilizing returns and protecting capital is just as relevant regardless of economic environment.

Today, investment in gold accounts for over one third of global demand.  This demand is made up of direct ownership of bars and coins, or indirect ownership via exchange-traded funds (ETFs) and similar products. (Source : WGC)

CENTRAL BANKS

In the past few years, the central banks with respect to gold has shifted fundamentally. Sales from the European central banks were slow but there were emerging market countries like Latin America, the Middle East and East Asia Since 2010, central banks have been net buyers of gold and their demand has increased rapidly, growing from 2% of total world demand in 2010 to over 9% in 2012. This change indicates a clear acknowledgement of the benefits of gold in a reserve portfolio.

Gold plays a prominent role in reserve asset management, as it is one of the few assets that is universally permitted by the investment guidelines of the world’s central banks. This is in part due to the gold market being deep and liquid, which is a key characteristic required by reserve asset managers.

INDUSTRIAL USES

Around 7% of the world demand for gold is for technical applications. The electronics industry accounts for the majority of this, where gold’s conductivity and resistance to corrosion make it the material of choice for manufacturers of high-specification components. In addition, the metal’s excellent biocompatibility means that it continues to be used in dentistry.

Beyond electronics and dentistry, gold is used across a variety of high-technology industries, in complex and difficult environments, including the space industry and in fuel cells. Gold’s catalytic properties are also beginning to create demand both within the automotive sector, as the metal has now been proven to be a commercially viable alternative to other materials in catalytic converters, and within the chemical industry.

A range of healthcare and catalytic applications for gold is currently being developed as the field of nanotechnology expands. While this demand is still small in tonnage terms, the growing number of patents being published relating to gold nanotechnology suggests many new applications will be developed in the coming years.

Although the information in this report has been obtained from and is based upon sources 1StopGold believes to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute 1StopGold' judgment as of the date of this report and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of an investment. This report does not consider or take into account the investment objectives or financial situation of a particular party.