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Is investing in gold stupid?


Overview

“(Gold) gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.”

                                                                                                           – Warren Buffett

Warren Buffett thinks that investing in gold is stupid, however, we would like to offer a different point of view on this.

Gold price against inflation

Singapore’s inflation over the past ten years account to about 30%. Price of gold however, increased by 170.30% in the same period of time.

If one had bought physical gold with his or her money, he or she would have hedged against inflation.

gold graph

( Source: goldprice.org)

Gold provides diversification

The economic crisis in year 2008 resulted in a significant drop in the stocks market. However, weakening in the US dollar gave way to the increase in demand for gold, thereby resulting in an increase in gold prices.

Investors seek to diversify risks by having assets in their portfolio which are not closely correlated. Gold investing provides an alternative to investors given its lack of correlation to other assets.

A good combination of stocks, bonds and gold in a portfolio will overall reduce the risk and volatility an investor is exposed to.

Increasing demand for gold

Over the years, we have witnessed the increase in wealth of emerging market economies. Coupled with the significant role that gold plays in the Asian culture, it is of no wonder that India is the world’s largest gold-consuming nation in the world, followed by Hong Kong. These two countries account for close to 35% of the world’s gold imports. ( Source: World’s Richest Country)

This means that the outlook for gold in the long term is strong with the demand for gold expected to be on the rise in the years to come.

Conclusion

Investing in gold may has its many advantages, but like any other investment tools carries its own risk. This is why a diversified portfolio is always recommended.

Singaporeans can conveniently invest in gold through avenues such as the UOB Gold savings account or Bullion Vault. However, due to the service charge per annum for the saving accounts, unless one has sufficient capital to invest in a relative large quantity of gold, we will not suggest physical gold investing as one of the investment options. But investing in gold is definitely, not stupid.

 

FSM INVEST Expo 2020

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