Gold, which is traditionally seen as a
safe haven, is usually subject to the whims of supply and demand. Its value
changes quickly, pushing the bullion price to extremely high levels at times.
The yellow metal also makes a habit of performing poorly when the
stock market is doing well. But gold is the ultimate store of value, according
to precious metals expert Ronan Manly of Singapore’s BullionStar.
“What this means is that gold retains its purchasing power over
long periods. Gold's purchasing power is not eroded by inflation as it is an
inflation hedge,” the analyst told RT. “In contrast, fiat currencies
such as the US dollar are not stores of value. Fiat currency purchasing power
is consistently eroded by inflation, and over time fiat currencies, such as the
US dollar, lose nearly all of their purchasing power relative to gold.”
Widely accepted as a safe haven, gold is commonly seen as financial
insurance in times of crisis, conflict or war, with investors rushing to the
asset during these periods, according to Manly. He compares the precious
commodity to a “safe harbor when there is geopolitical turmoil.”
The expert points out that the physical commodity has a low
correlation with the prices of other financial assets and securities, as it is
less impacted by business and macro-economic cycles compared to most other
assets.
“Gold therefore also aids portfolio diversification since by
adding an investment in gold to an existing portfolio of other assets such as
stocks and bonds, the overall volatility or risk of an investment portfolio can
be reduced while boosting portfolio returns,” Manly said.
Accept
no paper substitute: Buy physical gold
The research analyst stresses that the best way to invest in the
precious asset is to buy physical gold as opposed to gold-backed
exchange-traded funds (ETFs) or gold futures. “Physical gold has a limited
supply unlike fiat currencies because gold is difficult and costly to mine and
process, and is therefore scarce,” the precious metals expert said.
According to
the expert, gold-backed ETFs only provide exposure to the gold price and not to
gold. Unit holders of gold-backed ETFs are shareholders, not gold holders.
Gold-backed ETFs are also complex trusts or securitized products, where the
trust owns the gold, and there are many moving parts and a lot of counterparty
risk to the various entities-backed ETFs, there is also no option to take
delivery of the underlying gold or to convert the units or shares into physical
gold.
The expert
adds that the advantage of physical gold is that it is portable and anonymous,
difficult to counterfeit, cannot be debased and is highly stable to
counterparty risk or default risk since it’s not issued by any corporation,
government, central bank or other entity.
“It’s
also portable across international borders and due to the universal acceptance
of gold around the world, the gold market is highly liquid and gold bars and
coins, as long as they are recognized as being fabricated by well-respected
mints and refineries, can be sold in almost any city in the world so as to raise
cash at any time,” Manly said.
According to
the precious metals expert, physical gold is beyond the banking system and
ring-fenced from financial repression, as well as from the risks that are
essential for the current global monetary system.
“So
if you want wealth preservation that is outside the banking system and that
doesn't have any counterparty and no contract or entity that can default, then
you have to choose physical gold or at least something that has a direct claim
on allocated physical gold,”
concludes Manly.
Source: RT