Although the currencies in circulation have not been linked to gold since 1971, the main Central Banks consider investment in gold as the last refuge in the event of an economic crisis and therefore keep gold bullion and coins in their reserves. According to the WGC (World Gold Council), physical gold outperforms other assets in the preferences of Central Banks seeking to diversify from the dollar and the euro.
If we update the value of gold in 1980 ($850 an ounce) to the current level of inflation, an ounce of gold should be worth about $2200, which is much higher than the current price of gold. This reason is enough to value gold as an attractive investment in our portfolio.
Analysts explain that although 2013 has not been a good year for the precious metal, the price of an ounce of gold could rise between $100 and $150 per year; they also see an enormous potential for asset appreciation if the demand from foreign Central Banks, mainly Chinese and Russian, who wish to diversify their reserves to part of the dollar, continues to increase.
Why invest in physical gold?
- The gold price has followed an upward trend since 2000. Although last year has had a bad performance, the price of gold has more than quintupled during this period of 12 years, without having yet reached the levels of 1980 (adjusted for inflation).
- In the last year, the companies that exploit gold deposits have closed the most difficult mines to exploit in order to improve their profitability. This will cause world gold production to stagnate by reducing the supply of available gold.
- The price of gold always rises when real rates are low. We are currently in a period of low and even very low interest rates.
- Since 2004, the banks concluded Washington agreements that sought to regulate and limit sales of gold reserves of Central Banks.
- The demand for gold continues to increase, particularly in industry and jewelry. These two sectors represent about 70% of the world demand for gold and have an annual increase of 5 to 8%.
- In times of economic crisis, gold is the refuge value par excellence, therefore it is an act that allows us to diversify portfolios for pension funds and for professional investors.
- The crisis has made savers and investors aware of the risk of dynamic monetary investments. This has led to an interest in physical gold to protect our portfolio.
- Since 2002, the dollar or the euro have alternately lost their value against other currencies. Gold is traded in dollars, so a fall in the dollar leads to a rise in the price of gold. To counteract these effects, the Fed must keep interest rates low and therefore the dollar will remain weak.
- Gold is the only asset that offers us protection against inflation and deflation.
- Physical gold, especially bullion and gold coins, is considered by individuals as a wall against the