Gold Investment - Is it still profitable?

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Let's talk about gold. It is the number one safe-haven medium of investment. Whenever there’s a crisis, the gold price is expected to rise and sometimes even higher than predicted. Why is this situation measure occur? It is because many investors choose to invest in gold in order to limit their exposure to losses in the event of any economic uncertainty.

Why is gold so valuable?

Gold is a chemical element that is easily recognized by its yellow metallic colour in its pure form. It true origin of the element predates the formation of the Earth. However, is not unattainable, it can still be derived from mining or purchase. Gold is one of the most beautiful, useful, and rare compounds in our universe. It is valuable because of its rarity, high level of corrosion, chemical resistance, electrical conductivity, malleability, ductility, and beauty. It can be used for wedding rings, electronic components, and even NASA spaceships. China, Australia, Russia, USA, South Africa,Canada, Peru and Indonesia are the world’s largest gold producers. According to the US Geological Survey, in 2021 gold mine production worldwide reach approximately 3,000 metric tonnes (MT). Despite highly usage function and great demand, only 10% of the above-ground gold was used in industry, 50% of it was used in jewellery, and the remaining 40% was stored or used for investment purposes. Thus, it makes the element scarcity makes it extremely valuable, especially in the case of disasters. The US dollar continues to shrink, while gold holds (or increases) its value.

Gold, Is it still on hype?

Investors can invest in gold through exchange-traded funds (ETFs), buying stock in gold associated companies, and buying a physical product. Some investors argue that gold had lost its value over time as it no longer holds the monetary qualities as in the modern economic environment, fiat currency is the money of choice. In addition to the argument, digital currencies had become the new investment haven as it doesn't control by any entity. On the other end investors that assert gold is an asset with various intrinsic qualities that make it unique and necessary for investors to hold in their portfolios. Gold still carries its importance sentiment in the global economy. For example, let's look straight at the International Monetary Fund which is responsible for holding almost one-fifth of the world's above-ground gold supply. Not only that, it is well known that many central banks have gold as their reserves asset as a reflection of the long-term global economy. These two alone had shown a clear example of the importance of gold in the economy.

Let's look at the chart above, on the 23/02/2022 - XAU/USD price at 1886 and once the news outbreak “Putin orders Russian forces to attack Ukrain on the early Thursday morning” the gold price increased to 1977, almost 4.82% on the 24/2/22. 

This reflects in the statement “when there’s a crisis, the gold price is expected to rise”. In accordance with investor 

Different Ways of Owning Gold

Unlike hundreds of years ago, gold is no longer used as a medium of exchange. Thus the investment in gold is no longer limited to buying and selling gold jewellery, today there are many more investment options, such as; - Futures, Physical (Gold Waffel/ Coins), Gold Related Companies’ stocks, Gold ETF, Digital Gold, Golf Mutual Funds and many more. 

A Bad Time to Invest in Gold?

In order to ascertain the investment merits of gold, let's check its performance against that of the S&P 500 for the 6 months (as of April 2022).

Gold has outperformed compared to the S&P 500 over this period, with the S&P index generating about 5.17% in total returns compared to gold, which returned 10.12% over the same period. Looking at the chart, we can variously see that gold or S&P500 had outperformed one another, sometimes by a huge margin difference. 

What we can conclude from the scenario is that gold is not always the best safe investment. The best time to start investing is when the price is low and sell it off then the potential returns in favour. There are both advantages and disadvantages to every investment. If you are opposed to buying physical gold, investing in digital gold or buying shares in a gold related company may be a safer alternative. 

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