“Recently, the World Gold Council published a 2019 edition of a report on gold as a strategic asset. The industry organization released later the UK edition as well. Plenty of food for thought. How can the learnings from these publications strengthen our investment decisions?
Why should investors add gold, which does not bear any yield, to their portfolios? There are a few really good reasons. First, gold is a source of long-term capital gains, and the gold market is both deep and liquid (liquidity is an important but sometimes forgotten factor when establishing a strategic holding by investors). The yellow metal has not only outperformed all major fiat currencies, but also bonds or commodities. According to the WGC, the price of gold has increased by an average of 10 percent per year since 1971 when gold began to be freely traded following the collapse of Bretton Woods. It makes gold’s long-term returns comparable to stocks.
There is a good reason behind gold’s great price performance in the long run inflation. Gold returns have outpaced the US CPI. The end of the gold standard paved the way toward higher inflation, so the price of gold has soared in a new monetary regime, in which fiat money can be printed in unlimited quantities to support monetary policy. Not surprisingly, in such an environment, gold became one of the greatest hedge against extreme inflation. According to the WGC, in years when inflation has been higher than 3 percent, the price of the yellow metal has increased by 15 percent on average.”
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