Gold is a very interesting precious metal which makes gold ownership particularly interesting.  Let me explain why.

 

Gold has been around for many thousands of years.  It is virtually indestructible even if it gets smashed into specks of gold.  The only known way to destroy it is by dipping it in hydrochloric acid.  Scientists believe all the gold on Earth formed in supernovas and neutron star collisions that occurred before the solar system formed.  Isn’t that a magical thought?

 

About 60% of gold’s usage is in jewellery.  It does have industrial uses but nowhere near as much as its poorer cousin silver.  Interestingly a tonne of mobile phones produces 80 times as much gold as the equivalent amount of rock in a gold mine.  Now there’s a thought.  A Roman toga could be bought for an ounce of gold 2,000 years ago.  Today you could buy a good tailor made suit for about the same amount of gold.  Today’s gold price is around $2,400.  So gold has held its value in real terms for at least 2,000 years which is pretty remarkable.  

 

By contrast the US dollar, the world’s strongest currency, has lost 99% of its value through inflation in just the last 100 years.

 

Gold investment certainly divides opinion.  This is what the world’s most successful investor, Warren Buffett, had to say about it.

 

In his 2011 letter to Berkshire Hathaway’s shareholders, Buffett notably criticised gold as an asset with limited practical use and productivity. He pointed out that investors in gold do so with the hope that someone else will be willing to pay more for it in the future. Buffett highlighted that while investing in stocks or cropland can provide a rich return through dividends and harvests, an ounce of gold remains unchanged and offers no such benefits.

 

Other billionaire investors would beg to differ.  The likes of Ray Dalio, David Einhorn, John Paulson and Jacob Rothschild are big fans of gold investing.

 

Warren Buffett does make some good points about gold but his company Berkshire Hathaway invests substantial sums in US government bonds and their track record this century hasn’t been as good as gold’s!  What’s more, gold has outperformed the S&P 500, the index of the 500 largest US shares, this century to date.  However, I do accept that over much longer time frames equities will usually outperform gold as well as bonds and cash.

 

I do believe everyone should invest some of their wealth into gold as part of an overall diversified portfolio. It  would form part of the lower risk category of assets in their portfolio. The majority should be invested in equities as long as the time horizon is at least 10 years.  You know it makes sense.*

 

*RISK WARNING

 

The value of investments can fall as well as rise. You may not get back what you invested. The information contained within this blog is for guidance only and does not constitute advice which should be sought before taking any action or inaction. All information is based on our current understanding of taxation, legislation, regulations and case law in the current tax year. Any levels and bases of relief from taxation are subject to change. Tax treatment is based on individual circumstances and may be subject to change in the future. The Financial Conduct Authority does not regulate tax planning, estate planning, or trusts.  This blog is based on my own observations and opinions.