Is Gold a Good Investment?

Ah, gold. It has been a valued commodity for thousands of years. Credible records exist that show the use of gold as jewelry and currency at least as far back as 1500 B.C.

There’s no sign of its popularity and reliability waning anytime soon. In fact, gold may actually be more popular than ever because of growing inflation, economic uncertainty, and geopolitical instability.

So, there’s no denying that gold is an excellent and smart investment. However, let’s take a closer look at exactly how we got here with gold, and the deeper reasons why having gold in your portfolio is a good idea.

Gold’s Historical Provenance as a Safe-Haven Asset

There is evidence of gold as a valued property stretching back to 4000 B.C. Ancient civilizations used gold in their jewelry and objects of worship in places like eastern Europe and the Middle East.

Gold became a currency medium around 1500 BC. The Egyptians fashioned the shekel out of electrum, a naturally-occurring gold-silver alloy that made for easy minting.

The shekel was just the beginning, however. Cultures across Asia, Africa, and Europe, including the Romans, the Greeks, the Normans, the Chinese, and the British, used gold to trade and, for that matter, went to war to acquire more of it at times.

More recently, the US used gold extensively through most of its history. From its founding until the mid-20th century, the dollar’s value was directly equivalent to a certain amount of gold – by law.

However, the severance of the dollar from the gold standard, a process begun by FDR and finished by Nixon, untethered the dollar from gold and allowed the dollar’s value to float against the value of other currencies.

Thus, gold became a safe haven for investors looking to protect their net worth against the economy’s and central banks’ whims.

The Role of Gold in Protecting Against Inflation

This new status for gold appeared because gold’s bulwark value remained a constant against the floating currency values. As central banks added additional notes to their economies, without an accompanying rise to GDP, the currency necessarily diluted. Most countries, including the US, have experienced inflation due to this dilution.

Gold’s value remained steadfast. So, it is quite easy to see that gold’s value has moved inversely against the status of the economy and/or the rate of inflation afflicting the dollar (or other currencies). Though it’s not a perfect relationship, the trend is clearly there – gold’s value increases as the value of the currency or the economy declines.

The nice thing is that even as the economy improves, it may not affect the price of gold negatively. Though inflation rates may slow, they rarely move into a period of deflation. In other words, the currency continues to devalue, and gold investors are the beneficiaries.

Global Demand and Limited Supply

Except for 2020, annual demand for gold worldwide has surpassed 4000 tons every year since 2010. By contrast, annual gold production from mines during the same period has never breached 4000 in any single year, even though annual production has increased by nearly 1000 tons since 2010.

Unfortunately, it doesn’t appear that supply will ever surpass demand for gold anymore. Discoveries of new gold veins are becoming rarer, and our current mining methods are reaching the limit of their capabilities. Some experts predict that gold mining could become unprofitable by 2050, but that doesn’t mean that demand will lessen.

Instead, new gold might become a game of recycling, rather than discovery. Because gold doesn’t ever spoil or get used up, it can always be repurposed into new products.

As for what is driving the demand, the answer is fairly simple. Although gold is valued in some industrial contexts, the primary demand for the metal remains with the jewelry industry.

Other areas of demand include the electronics industry, which uses gold for its conductive properties, and investments. In fact, many investment portfolios and precious metals ETFs have made a big push to acquire as much gold as possible.

Long story short, the call for gold is not going to dwindle in the face of weakening supplies. However, don’t be too quick to assume that the spot price will necessarily rise. That’s one thing that experts cannot predict.

Gold’s Stability and Low Correlation to Other Assets

Relatively speaking, however, gold does move quite predictably compared to other investments and assets. Its inverse relationship with the economy is fairly consistent, albeit with some wiggles here and there.

This relationship also stands in contrast to those other investment classes. Stocks, commodities, and even bonds mirror the progress of the economy, including when it goes down.

The progress of the economy doesn’t exist in a vacuum, either. It is adversely affected by geopolitical events, both domestically and abroad.

Gold doesn’t care about such matters. Thus, it can provide balance to your portfolio, and it can stabilize your entire net worth when the rest of the investment classes in it are suffering.

Long-Term Growth Potential

The last thing to consider about investing in gold is whether it will continue to increase its value over time. Long story short, it has appreciated in value for most of recorded history.

The past 50 years of US history have also played host to a consistent build in the value of gold. Though that period has included some dips or periods of flat value – notably, prices stayed within a $200 range between 1982 and 2002 – there has never been a time where gold hasn’t rebounded.

Now, gold has reached unparalleled heights in the past few years. In fact, its price recently breached over $2000/oz for the first time in American history.

So, with gold at or near record highs, it stands to reason that it is due to decline. Truthfully, it may do so in the near term as the economy improves and investors sell their gold to capture profits.

However, on a long-term basis, the dire status of gold mining and supplies are likely to drive the price for an ounce even higher. Some investing experts even believe that $4000 an ounce might not be a farfetched price in the not-so-distant future.

Whether or not it ever reaches that zenith, there’s no doubt that there is long-term potential for growth with gold. Though it may require a bit of faith at times, the value of your gold investment is almost certain to increase over the next 50 years.

Conclusion: Why Gold is a Smart Investment

Hopefully, we’ve proven the point to you about gold as an important part of your investment portfolio. We’ve all heard horror stories about stocks dropping to zero and investors losing everything. You simply cannot do that with gold – gold is always a valuable product, and always will be.

If you’re ready to dip your toe into the world of gold, we’d love to help. Our customer service team can help you decide between gold bars or gold coins. Drop us a line here at JM Bullion to get started or if you have additional questions. We’re always here to make the process as easy as possible.