The reasons for investing in gold have remained the same throughout history:
- store of value over time;
- safe haven;
- high liquidity;
Gold has been used as “money supply” because he has done function of money
- It is portable and divisible. His weight easily determines the value of the object;
- It is indestructible;
- It is easily recognizable and acceptable form of payment.
Both in times of crisis and in times of prosperity gold endures. The cyclical nature of the market is a historical fact and discharged, but gold is able to maintain its value over time. By contrast, many currencies (including the dollar U.S.A.) and industrial commodities have generally lost value. This is because gold is often bought to hedge the risks of inflation and currency fluctuations, and also because many investors around the world see gold as a safe haven of last resort, safe and important part of their investment portfolio. This chart shows that gold has maintained its value against the US inflation rate over the last 200 years.
value of gold through the years
In other words, the value of gold – or what you can buy goods or services – has remained fairly stable over time. For example, a suit man in the 16th century in England in the time of King Henry VIII cost the equivalent of one ounce of gold, the price you can pay now for a modern dress.
Gold is known as a safe haven. In history, national currencies had significant fluctuations while gold remained fairly stable. It is not directly influenced by the economic policies of each country and can not be repudiated or “frozen” as in the case of some paper assets. For these reasons, a quarter of all the existing gold is held by governments, central banks or other official institutions in the form of international currency reserves. Nothing suggests that the gold ability to maintain over time its value will change in the future, even if for some time, currencies like the dollar U.S.A. and the Swiss Franc have become increasingly attractive haven assets.
Gold is one of the world economic goods more “liquid.” It can be readily sold 24 hours 24 in one or more markets throughout the world. This can not be said for other types of investments including stocks or shares of the largest companies or global institutions. In addition the gold trading fees are comparable to those of stocks and bonds (securities considered liquids). Finally, the time required to perform operations on the gold that is on shares or bonds, and virtually identical
That your way of investing is aggressive rather than conservative, gold can play an important role by diversifying the portfolio. For this reason, many investors are encouraged to invest part of their portfolio in gold. Since most of the portfolios are composed largely of stocks and bonds, adding gold it is greatly diversified. The diversification of the portfolio stems from the protection against fluctuations in the value of each investment sector. Gold does just that. The gold characteristic of being a great “diversifier” is due its limited correlation with the performance of stocks and bonds. Economic forces that determine the price of gold are different, and in many cases contrary to those that determine the prices of other goods. For example the price of a share depends on the rumors of potential growth of the party they represent; on the other hand, the price of a bond is born from the company’s stability, the yield on invested funds. The price of gold, depends on several factors such as supply and demand, the trend of the dollar U.S.A., the rate of inflation and interest rates. While the effect of these factors on gold are somewhat complex, the key point to remember is that these elements move the price of gold regardless of the price of other assets in the portfolio. This graph shows that gold is not correlated with other investment sectors.
Gold is the only asset that is “negatively correlated” with other investment sectors (see graph shown above). Therefore, its price generally moves in the opposite direction compared to the other assets such as the US stock market, treasury bills and bonds. Source: World Gold Council.
In these periods of total globalization, new economy, and on-line trading, it has been a revolution in Italy in the considerable financial investment sector’s importance, to which the mass media have not given due prominence. Since February 2000, in fact, following the entry into force of Law no. 7/2000 has been abolished the monopoly on gold that has finally allowed the private investors to buy coins and gold bars until free of VAT! Until then, the “safe haven” for excellence, was regarded by investors as a mirage, a symbol of wealth and prosperity. Today it is not so, anyone will have the chance to enter with ease in possession of pure gold, well that has remained intact over the centuries its value.
The Numismatics Zamperetti is ready to recommend the best way for you to invest.