Why Gold Buyers Are Making A Wise Addition To Their Investment Portfolios

If you haven't considered diversifying your investment portfolio to include gold, you probably should. On the other hand, if you don't even have any investments, you definitely should consider it.

The Purpose Of Diversified Investments

Many times people end up losing their wealth simply because they don't diversify their investments. If you put all your wealth in one type of investment, you risk losing all of it when it goes wrong. However, a greater diversity in investments will help cushion your against any pitfalls that may affect one investment.

You may actually think that you're better off putting all your investments in conventional forms of assets, such as buildings, rather than buying gold. However, you would have to also consider the costs required in proper maintenance of buildings. This includes such aspects are roof repairs or fixing heating systems. You don't have to deal with such aspects if you have gold as an asset.

Established Financial Institutions Include Gold In Their Reserves

You only need to observe established financial institutions to realize the value of gold as a wise investment. A recent report by the World Gold Council reveals that a good number of central banks are seeking alternative reserve assets, to diversify their portfolio allocation to Euros and US dollars. Gold has emerged among the best choices for such diversification, based on a portfolio optimization analysis. This is because it lacks credit risk, while having a deep and liquid market.

Actually, central banks have traditionally held gold, since it can be used in case the international financial system experiences a crisis. Moreover, a unique aspect of this reserve asset is that it isn't a claim on any other bank, government or institution.

Tracking The Value Of Gold through History

Australia experienced a modern gold rush during the 1970s and '80s. Since then, this valuable metal has remained one of the major exports in Australia. The Australian Bureau of Statistics reveals that A$15 billion worth of gold exports ranked as Australia's third largest export commodity in 2010.

In order to truly appreciate how valuable this yellow metal is, you need a bit of insight on its increasing value through history. The Reserve Bank of Australia provides a simple overview of this history. The price of gold remained quite consistent from 1900 to early 1970 (take note that the price per ounce was US$35 in 1933). This later rose dramatically, to a high of US$800 in 1980.

For a period of 11 years, until 2012, gold experienced year-on-year increases in price. Currently, information from the Queensland Parliamentary Library and Research Service reveals that prices have continued increasing, with a price of US$1,323.25 being recorded in February 2014.

This clearly shows how valuable gold is as a resilient holding. It's doesn't just appreciate in value only when economies experience downturns (these are the times when it does much better compared to other financial instruments). Your investment is also likely to hold up quite well even in good times.

However, you should remember that buying stocks in gold mining firms is not the same as directly buying the precious yellow metal. In such a case, you would face similar risks as any other ordinary stock or bond.


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