WGC: THE STRATEGIC ROLE OF GOLD IN AN INVESTMENT PORTFOLIO

According to a report by the World Gold Council (WGC), demand for gold investments has grown by an average of 18% annually since 2001. An important moment was the collapse of the financial system in 2007. The crash made the public realize how illusory and fragile the stock market boom can be. This knowledge is particularly relevant today, as we are now in the ninth year of a bull market on the US stock exchange. In this context, it is worth recalling the advantages of gold as a component of a balanced investment portfolio.

Diversification

Gold has a low correlation with other assets, which makes it the best way to protect your investment portfolio from losses during times of crisis. When hedge funds, commodity exchange prices, and the real estate market collapsed in 2008-2009, gold remained on an upward trend. What's more, economic problems often work in gold's favor, and when everything else loses value, the price of gold rises.

Accumulating gold also brings benefits during periods of economic prosperity. Increased wealth naturally increases demand for alternative forms of capital investment. Investors allocate more money to savings, which increases the popularity—and thus the price—of the precious metal. Gold not only maintains the value of the invested capital, but also multiplies it together with other components of the portfolio.

Source of profits

The best confirmation that investing in gold is a source of significant profits in the long term is an analysis of historical prices. According to WGC data, since 1971, the average annual rate of return on the gold market has been 10%. For years when inflation in the US exceeded 3%, this figure rises to 14%. The precious metal therefore achieves results comparable to stocks and significantly better than bonds. A growing group of investors, declining production, and limited resources contribute to the prospect of steady price increases in the future.

High market liquidity

A huge advantage of the gold market is its high liquidity. This means that large purchase and sale transactions can be made at any time. This is particularly important for the largest investors, such as central banks and other financial institutions. According to WGC estimates, daily flows in the global gold market range from $150 to $220 trillion.

From the perspective of smaller-scale investments, gold offers the invaluable convenience of being exchangeable anytime, anywhere in the world. Unlike other assets, a gold bar will always find buyers, regardless of the state of the economy or the political situation.