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Gold as an investment

What myths have surrounded gold since time immemorial! In earlier centuries, wars were fought, and entire continents were raided just for the sake of gold! The glamour of gold outshone everything. Alchemy was a pseudo-science for the artificial production of gold and enjoyed a very high reputation. We would like to address these questions in the following text, drawing on our experience with gold as a financial investment.

What is the significance of gold today?

Can gold be used as an investment and does it make sense? The price of gold has fluctuated between USD 250 and USD 2,000 per ounce of fine gold over the past 20 years. The price of gold is therefore highly volatile.

What forms of gold investment are possible?

You can buy gold as gold bars, gold coins, gold jewellery, gold accounts, gold funds, gold derivates, gold certificates, gold mining shares or gold share funds. So, there are many different forms of investment in gold, which entail different costs, risks and opportunities.

What are the advantages of investing in gold?

  • Gold as a crisis currency
  • In the past, gold has always been able to survive wars, economic recessions, pandemics and currency reforms and has always been highly prized by investors.
  • Gold for risk diversification
  • As part of a broadly diversified investment portfolio, gold can serve as a stabiliser, especially in volatile stock markets and in times of high inflation.
  • Gold as a scarce commodity
  • Gold is only available in limited quantities, and in contrast to a printed currency, it cannot be increased indefinitely. Due to this fact and high demand, gold has a relatively high value.

On the downside, genève invest has repeatedly observed the following issues:

Buying gold in smaller quantities is expensive.
The fine ounce of gold is currently valued at around USD 1,800 or EUR 1,600. If you want to buy a fine ounce through a bank or a gold dealer, there is a five per cent margin between the buying and selling price. For even smaller quantities, the margin can exceed ten per cent. It can then take a long time for an increase in the price of gold to compensate for the initial loss.
Storing gold is expensive.
You can, of course, stash gold inexpensively at home. But the risk involved should be carefully considered. The alternative is to store gold in a bank safe deposit box. The rent for this can quickly amount to 200 euros or more per year. Moreover, safe deposit boxes are in great demand and short supply.
Gold is subject to a currency risk.
Since gold is traded worldwide in US dollars, the exchange rate of the dollar to the respective reference currency is a significant factor when buying and selling gold. The currency rate fluctuations are often smaller than the gold price movement itself. For a euro investor, this means you can suffer a loss even though the gold price may have risen.
Gold does not pay interest or dividends.
Gold does not create any value because nothing is produced. Therefore, there is no interest or dividend flow. The costs of storage are still there.
The gold price is subject to high fluctuations.
As an investor in gold, you have to hope that the gold price will rise in the future. This only happens if demand increases while the production of gold remains the same. But this has not always been the case. Between 1987 and 1999, the price of gold fell by half.
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When investing, genève invest recommends

Paying particular attention to a broad diversification across different asset classes and investment securities. During crises in the past, gold has a proven track record of absorbing losses in other asset classes such as equities or real estate under certain conditions. However, the long-term performance of gold over decades has shown that after deducting costs and factoring in inflation, only in relatively few short phases was it really possible to make money with gold.

Conclusion

Therefore, Genève Invest recommends investing a maximum of five to ten per cent of the total portfolio in gold, and only for risk diversification, as there are simply higher-yielding and more lucrative alternatives.

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