How Safe is Gold Investing?

Over centuries, gold has remained an asset class that investors can trust. Investors have repeatedly turned to gold during periods of economic uncertainty. Gold is generally seen as a precious metal that generates steady returns over the short term. In recent years, the world has been plagued by economic crisis and investors have always turned to gold. A glaring example from the recent past is the highest peak price ever achieved by gold in August 2020, when it touched close to $2,000 per ounce. However, with all the interest in gold, it is pertinent to find out about the safety of gold investments.

How Safe is Gold Investing?
Investors enjoy the safety of gold

Gold as insurance for investors

In 2011, during the peak of the 2008 financial crisis, gold breached the $1,900 barrier for the first time. The collapse of Lehman Bros was quickly followed by the downfall of many UK banks and investors lost their confidence in the global economy and capital markets. Clearly, they decided to move their investments to gold as a safe haven. The partial recovery that the global capital markets made since those years was nipped in the bud by renewed economic uncertainty from many factors.Insider's Guide to gold and silver

Brexit created uncertainty across the European economies, while the US-China trade war and a host of other geopolitical factors ensured that the global economy never made a full recovery. This phase was followed by the global pandemic, which came upon us in 2020. By August 2020, gold had once again breached price barriers to reach a new high. Looking back at these events, we can conclude that investors frequently move to gold, due to the safety and security it provides.

Counterparty risks

Physical gold investments are also free from counterparty risks. These are risks associated with investments that are dependent on their fulfilment by a third party. If the market fails to perform, the stocks you buy or the mutual funds you invest in may shrink in value. However, gold investments are devoid of such risks, because it is a tangible asset that you own.

How Safe is Gold Investing?

Gold investments are not subject to counterparty risks

The rise and fall of gold prices

The gold price can go down as well as up, depending on supply and demand. Over the short term, there’s the risk that your investment could fall in value. Over the medium to long term, gold has proven to increase in value quicker than the inflation rate, proving to be a reliable store of wealth. Buying in paper form, like ETFs, gold futures or gold shares, poses further risks with leverage and counterparty exposure. Owning gold investment coins and bars negates both these risks.

Over the last 10 years, gold prices have never sunk below the $1,000 price point. While equity and debt investments, mutual funds, debentures or derivatives can all be devalued to a point where they are worth next to nothing, gold continues to have an intrinsic value that provides safety. If we look at price charts of gold during the mid-1990s, we can see that the price of gold was $400 an ounce in 1996. The value of gold quadrupled over 20 years and never looked back.

Get in touch with Physical Gold to discuss your gold investments

Physical Gold is one of the U.K.’s most reputed gold dealers. We provide free investment advice about any precious metal investments that you choose to make. We are always happy to discuss your investment plans and identify the best options that can generate optimal returns. Please call us on (020) 7060 9992 or contact us online and our investment team will be in touch with you right away.


Image credits: Marco Verch and Wikimedia Commons

By Daniel Fisher

Daniel Fisher formed physical Gold in 2008, after working in the financial industry for 20 years. He spent much of that time working within the new issue fixed income business at a top tier US bank. In this role, he traded a large book of fixed income securities, raised capital for some of the largest government, financial, and corporate institutions in the world and advised the leading global institutional investors. Daniel is CeFA registered and is a member of the Institute of Financial Planning.

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