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Gold as an asset

Gold is respected throughout the world for its value and rich history, which has been interwoven into cultures for thousands of years. Coins containing gold appeared around 800 B.C., and the first pure gold coins were struck during the reign of King Croesus of Lydia about 300 years later.
Throughout the centuries, people have continued to hold gold for various reasons. Societies, and now economies, have placed value on gold, thus perpetuating its worth. It is the metal people fall back on when other forms of currency don't work, which means it always has some value as insurance against tough times.
For centuries, gold has been the greatest symbol of wealth and power. Precious metals such as gold possess a very special magic, which is created by the combination of its value and their glossy appearance.
But there is much more behind gold than just the pure symbolic and mystic character. Precious metals are considered a constantly strong substitute for fiat currencies. This is why gold has always increased in value over the last centuries and decades. The world currencies, such as the Euro or the USD, however, show significant weakness.
More and more buyers therefore prefer the profitable safe haven in form of gold. In the very likely event that fiat currencies continue to decrease in value, it is hardly possible for buyers to generate returns that exceed the inflation rate. This devalues the capital that has been painstakingly saved year after year. Gold, on the other hand, is considered a stable currency because, unlike fiat money, as the amount of gold is limited and it cannot be created our of thin air. While fiat currencies historically always failed, gold has been stable and has increased in value over the last centuries. Gold is the only currency that has been there for years and still exists.
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Key reasons to hold gold

Unlike paper currency, coins or other assets, gold has maintained its value throughout the ages. People see gold as a way to pass on and preserve their wealth from one generation to the next. Since ancient times, people have valued the unique properties of the precious metal.
Weakness of the U.S. Dollar and other major fiat currencies
Gold, on the other hand, is considered a stable currency because it cannot be created out of thin air, unlike fiat money. The available amount of gold is limited. While fiat currencies historically always failed, gold has been stable and was even increasing in value. Gold is the only currency that has been there for years and still exists. Moreover, gold is seen as a good store of value so people may be encouraged to buy gold when they believe that their local currency is losing value.
Inflation Hedge
Gold has historically been an excellent hedge against inflation, because its price tends to rise when the cost of living increases. Over the past 50 years buyers have seen gold prices soar and the stock market plunge during high-inflation years. This is because when fiat currency loses its purchasing power to inflation, gold tends to be priced in those currency units and thus tends to rise along with everything else.
Deflation Protection
Throughout history and especially during periods of deflation, the relative purchasing power of gold soared while other prices dropped sharply. This is because people chose to hoard cash, and the safest place to hold cash was in gold and gold coins at the time.
Geopolitical Uncertainty
Gold retains its value not only in times of financial uncertainty, but in times of geopolitical uncertainty. It is often called the "crisis commodity," because people flee to its relative safety when world tensions rise; during such times, it often outperforms other opportunities. For example, gold prices experienced some major price movements this year in response to the crisis occurring in the European Union. Its price often rises the most when confidence in governments is low.
Supply Constraints
Much of the supply of gold in the market since the 1990s has come from sales of gold bullion from the vaults of global central banks. This selling by global central banks slowed greatly in 2008. At the same time, production of new gold from mines had been declining since 2000. It can take from five to 10 years to bring a new mine into production. As a general rule, reduction in the supply of gold increases gold prices
Increasing Demand
In previous years, increased wealth of emerging market economies boosted demand for gold. In many of these countries, gold is intertwined into the culture. Demand for gold has also grown among buyers. Many are beginning to see commodities, particularly gold, as an opportunity class into which funds should be allocated.
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Portfolio Diversification

The key to diversification is finding opportunities that are not closely correlated to one another; gold has historically had a negative correlation to stocks and other financial instruments. Recent history bears this out:
  • The 1970s was great for gold, but terrible for stocks.
  • The 1980s and 1990s were wonderful for stocks, but horrible for gold.
  • 2008 saw stocks drop substantially as consumers migrated to gold.
Properly diversified buyers combine gold with stocks and bonds in a portfolio to reduce the overall volatility and risk. Owning gold means being protected and secured. Gold should be an important part of a diversified portfolio because its price increases in response to events that cause the value of stocks and bonds, to decline. Although the price of gold can be volatile in the short term, it has always maintained its value over the long term. Through the years, it has served as a hedge against inflation and the erosion of major currencies, and thus is an opportunity well worth considering.

The advantages of gold for the buyer

Gold is a source of long-term returns
  • As a strategic asset, gold has historically improved the risk-adjusted returns of portfolios, delivering returns while reducing losses and providing liquidity to meet liabilities in times of market stress.
  • Gold was the one of the best performing asset class of the 21st century.
  • Gold is a liquid asset with no credit risk (Compared to fiat currencies) that has outperformed fiat currencies.
  • Gold gives exposure to the best performing asset class of the 21st century – since 2001 gold has risen by 360%.
What are the advantages of purchasing and owning gold:
  • Gold’s role as a diversifier (at least 5-10% of total net worth).
  • Low correlation to most mainstream assets.
  • Hedge against systemic risk and strong stock market pullbacks.
  • Store of wealth.
  • Insurance against global macroeconomic and political risks.
  • Inflation and currency Hedge.
  • A means to enhance overall portfolio performance.
  • Cannot be devalued at the whims of government policy in order to mask underlying problems in their economies.
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