Brexit, the US-China trade war, protests in many countries, the shutdown of the economy and the ban on international travel due to the coronavirus pandemic, or in other words, the reality we live in, further undermine the value of paper money as new geopolitical risks emerge.
For example, the price of gold rose slightly due to the uncertainty of the UK’s exit from the EU.
Therefore, in such situations, gold shines both literally and figuratively. Bars and coins are standardized, meaning they are accepted worldwide, unlike some fiat currencies. In addition, there is always a reference price for gold, which makes it not only a savior of purchasing power in crises, but also in geopolitical chaos.
Increasing Demand
Gold has many sources of demand that do not decrease. This applies even in crisis years. In 2020, when much of the tech sector shut down and industrial demand fell, demand for gold for investment increased to values nearly 50% higher than the average of recent years.
But it is wrong to look at gold demand only in terms of changes for a year or two. The reason is that, like supply, demand for the metal is growing slowly. But if we look at long-term trends, it has almost doubled in the last 25 years. The increase is from just over 2.5 thousand tons in 1995 to 4.5 thousand tons in 2019.
When the economy returns to “normal”, gold segments are expected to continue to grow.
Diversification Of The Investment Portfolio
Legendary investor Sir John Templeton directly recommends: “Diversify.” Even though to some of his peers, diversification is “the key to mediocrity,” ultimately, Templeton proves that he certainly knows what he’s talking about. It’s not for nothing that 99.9% of people are not professional investors.
Therefore, they can easily panic when they see momentary fluctuations in a particular asset. For example, the 1970s were great for gold prices, but terrible for world reserves. Over the next two decades, the yield of gold increased, but this led to a certain decrease in its price.
The right investment strategy is not to bet everything on one card, but to always have a backup option.
Gold has proven to be a safe asset throughout history. Gold has risen during crises, inflations and low interest rates. It certainly deserves a special place in any long-term investment portfolio.
