If you are not familiar with gold as an investment, it might seem a bit bizarre that people invest in lumps of metal for financial reasons! We have listed some of the reasons why people choose to buy below.
Gold is one of the oldest currencies in the world. If you look at the purchasing power of gold over time, you will see an ounce of gold will sell for roughly the same now as it did 300 years ago. Conversely, if you look at the purchasing power of some major national currencies over the same period, you will find that the buying power of these currencies has severely decreased. The reasoning behind this is that paper money is not a true reflection of wealth. You may have healthy savings in a particular currency, but if that currency becomes devalued, your wealth would no longer have the same purchasing power it once did, owing to inflation. Many people who buy gold believe that it is the only way to hold their savings in a safe manner.
Another reason people invest in physical gold is to diversify their investment portfolio and limit their exposure to financial uncertainty. This can be successful as gold tends to react very differently to a lot of mainstream, more modern investments such as equities, property and bonds. Metals act a safe haven in hard times, and tend to rise when financial market related investments perform poorly. This type of negative correlation is effective for limiting damage to your investments, and acts as a form of insurance. For example, if your stocks had significantly decreased in value, it is quite likely that your gold investment would increase in value over the same time period.
If you start to hear whispers of recession in the finance pages, soon articles on bullion investment will appear! Metals are seen as a safe haven investment, and usually increase in an underperforming economy.
A great advantage of gold is that it gives you portable wealth which you can exchange for goods and services around the world, avoiding dependency on a single currency. As gold has a high density and a high value, it does not take up much space. It can therefore be easily transported in relatively small amounts, in the form of gold coins or bars. It has a universally recognised value and can be exchanged for a cash value in many places around the world.