Investment Advice – Is Gold Still A Valid Opportunity?
There is no more perfect representation of the concept of wealth than gold. Diamonds can be zirconium; silver can be aluminium; bronze can turn green; but there is no mistaking gold’s place as the signifier of wealth.
Indeed, such is gold’s place it actively backed up most of the world’s economies up until 1970 – as the so-called ‘gold standard.’ However, even though the gold standard has largely been abandoned in favour of the US dollar, gold has remained one of the few consistently stable investment opportunities.
However, with the recent events in Ukraine and the economic instability that has come about as a result, we as investors are forced to question, as Tanya Jeffries of thisismoney.com does, whether gold is still the safest and most trustworthy investment opportunity.
What’s The Story?
In the early 1980s, the price of gold increased rapidly; however, that is nothing compared to the increase that happened at the start of the 21st century. Since 2005, the price of gold has increased rapidly. To better understand this, we must turn to BullionVault – which tracks the price of gold.
As you can see, the price of gold has increased almost 1000% since 2002. But what caused this rapid rise in price?
Causes of Gold Inflation
The cost of gold is generally tied to five key factors. These are:
One factor which effects the price of gold is the behaviour of centralised national banks. As the largest single purchaser and purchaser of gold, their policies on gold sales and purchases can have a knock-on effect on the global price of gold.
Global Interest Rate
As the base material from which most other values are derived, gold has no determined value by itself. As a result, the cost of gold is closely related to the global interest rate.
The US Dollar
According to the IMF, 40-50% of the movements in the price of gold in 2008 was due to instability of the US dollar in the wake of the 2007 Global Recession.
The Wider Economy
Financial stress on the wider economy is another factor which can affect the price of gold. Steep decline in the value of other assets, such as equities and high volatility of asset prices, lead to the demand for a more stable store of value – which is normally gold.
At the same time, fears about the security of other assets, such as bonds, can also affect the price of gold. This is due to the possibility of default and potentially even systematic collapse. Likewise, the need for liquidity also makes the gold price increase.
The price of gold is easily affected by political and social instability. This is because gold is often considered a ‘base currency,’ a replacement currency in case political and social instability causes a nation’s currency to go into free-fall.
In such an event, a country will exchange large amounts of their own currency in return to gold before hyperinflation causes the currency to become worthless — as happened in Zimbabwe in 2007, Germany in the early 1920s, and there is evidence that Russian banks and citizens have taken to stockpiling gold in response to the recent sanctions, which have seen the price of the ruble take a nosedive.
Is Gold Still a Valid Investment Opportunity?
Ultimately, gold is still a good investment – albeit a very expensive one.
Although the price of gold has increased rapidly over the past twenty years, it has managed to hold its value consistently. Indeed, even when the price of gold has temporarily fallen, it has quickly risen up once again – more often than not overtaking its previous heights. At this point, it is unlikely that gold could ever become totally worthless.
As a result, based on its previous performance, gold is a very, very valid investment opportunity.
Investment Advice From Giliker Flynn
However, while gold is a valid opportunity for those willing to invest, it is not the only investment opportunity. To help you find the investment opportunity for you, speak to Giliker Flynn today.
Giliker Flynn is a company of independent wealth planners and financial advisers in Newcastle Under Lyme, Staffordshire. For over 15 years, we have provided our clients with financial advice, tax planning advice, pension advice, financial planning advice, and independent investment advice in Newcastle Under Lyme. We help smart investors like you maximise their savings and investment potential and take their financial situations to the next level. As is the case of all legitimate financial service organisations, we are fully authorised and regulated by the Financial Conduct Authority (FCA).
For more information about investment advice, retirement advice in Stoke On Trent, or pension advice in Stoke On Trent, get in touch with Giliker Flynn today.