Gold as a safe investment
Gold is seen by many as a safe investment. It is considered a crisis-proof investment. In times of crisis, the price of gold often moves in the opposite direction from the stock market and can generate profits in bad times. Gold can preserve wealth in times of crisis or hyperinflation. During the Corona crisis, gold was able to reach its all-time high and demand soared. Investors have a choice between investing in securities or physical gold.
Gold has been mined for centuries
Gold has been mined and used as a means of payment for centuries. It cannot be determined exactly since when gold has been used as a means of payment. At the time of ancient Egypt, gold was worn by the gods as a sign of beauty and symbolism. Today, gold is still considered a means of payment and is in demand by investors as a capital investment and by the jewelry industry. Gold occurs in the continental crust of the earth. The deposit is scattered around the world and is mined in many areas. Large gold deposits are located in China, USA, Russia, South Africa and Australia.
Gold is recycled
Every year, about 2,500 tons of gold is mined. The problem is that many tons of rock have to be moved to get to the gold inside. It should not be forgotten that more tons of gold are added every year through recycling. Old gold is recycled and reused. The central banks also regularly sell parts of their gold reserves. Gold is primarily in demand by the jewelry industry. In addition, there are investors and the central banks. There are further demanders through ETFs and through the technology sector.
India and China have high demand for gold
The demand by the jewelry industry is mainly due to countries like India and China. Gold has a high status in these countries. Over the years, more and more gold has been purchased by China and India. This means the supply of gold has decreased for the rest of the world. In addition, the central banks are buying large quantities of gold. In the industry, about 330 tons of gold is processed. On the stock exchange in the context of investments in gold are traded in about 400 tons of gold.
Investors can either invest in physical gold or trade in securities. Physical gold can be purchased in the form of gold bars, gold jewelry or gold coins. Here it depends on the fine gold content and weight. If one wants to invest in Gold Coins, one has the choice between bullion coins and collector coins. Exchange traded securities are permanently traded at the stock market price.
Gold to diversify the risks
Looking at the pricing of gold, prices result from the supply and demand. Especially in times of crisis, many investors turn to gold. It is important to know that gold does not yield a return. Investors only profit from value increases that result from the price formation. Stocks, on the other hand, do yield a return. The increase in value of shares depends, for example, on internal company factors, which do not exist in the case of gold. For this reason, it is not advisable to base one’s entire portfolio on gold. Investors should rather follow the principle of risk diversification.
According to this portfolio theory, investors should spread the risk. This means that the available capital should not be put into just one particular stock. Rather, it is advisable to hold stocks, bonds and commodities or other combinations in the portfolio. How much gold should be held in the portfolio is a point of contention among experts. It is assumed that around 10 percent of the investment should go into gold. In times of crisis, gold proves to be very stable, which is why the risk of a total loss of the portfolio is diversified.