The future of gold for investors in a graphic
Throughout history, people have revered gold as a sign of wealth and a store of value. Today gold is not only a precious metal but also a precious investment.
In fact, as Visual Capitalist shows below, in 2020, 47% of global gold demand, the largest share, came from investors.
Today's infographic from Kalo Gold outlines the economic reasons for gold and highlights some of the main reasons why investors are drawn to the precious yellow metal.
Gold as an investment: a shield for all financial conditions
- Gold can protect investors' wealth during difficult times by preserving long-term capital. Investors add gold to their portfolios because it offers many investment benefits:
Effective diversification
- In a typical equity and bond portfolio, gold's historically low correlation with major asset classes and negative correlation with the US dollar can reduce risk through diversification.
Inflation protection
- Gold is priced in US dollars. Therefore, as the purchasing power of the dollar decreases due to inflation, the purchase of gold becomes more expensive, acting as a hedge against the erosion of the dollar's value.
Long-term returns
- Gold has always held its value over the long term. Between 2001 and 2020, the annual return on gold averaged 11.2%, outperforming other key asset classes including US stocks, bonds and government bonds.
Additionally, gold's low correlation with other assets allows it to outperform during times of recession, reducing the downside of stock market downturns. Indeed, gold produced positive returns during the 2001 and 2008 recessions, while the S&P 500 turned negative.
Amid the economic turmoil of 2020, investors have turned back to gold, with record inflows of gold ETFs. And in turn, gold generated an annual return of 25%.
Gold: precious today, tomorrow and forever
With the rapidly rising money supply and near-zero interest rates in response to the COVID-19 recession, the world is entering an era of quantitative easing and, perhaps, more inflation.
This could create the perfect storm for gold, for three key reasons:
- Gold has historically performed well during times of high inflation (above 3%), offering an average annual return of 15.4%.
- The price of gold has historically followed the growth of the global stock of the M2 money supply.
- Low interest rates reduce the opportunity cost of gold. Therefore, gold often outperforms when real interest rates fall.
- The economic rationale for gold is based on its ability to protect investors in times of recession and times of volatility, while preserving long-term wealth.
Gold does not rust: it will always retain its value, as a precious metal and as a valuable investment. Or at least this is the thinking of those who invest in gold, but remember that, in any case, it is an investment instrument like the others subject to the market.
Thanks to our Telegram channel you can stay updated on the publication of new articles of Economic Scenarios.
The article The future of gold for investors in a graphic comes from ScenariEconomici.it .
This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/il-futuro-delloro-per-gli-investitori-in-una-grafica/ on Mon, 10 May 2021 07:00:11 +0000.