Gold as investment? THINK AGAIN!

Instead consider gold as your insurance premium!

Gold has been the traditional form of investment for many years – decades – centuries actually. It has proven to hold it’s value in past and endured many tests in real world.

However, I have been a firm believer of the fact that gold does not have any intrinsic value and its just the novelty factor which holds up to it’s price! Having said that, one should always have some kind of gold in the portfolio – I recommend at least 5% to at max 10% depending on the investment horizon.

It has to be noted that in past, gold has always provided a good store of value in natural calamities or wars – in the 1980, it hit a record high of $850 an ounce, as investors pile into bullion prompted by high inflation due to strong oil prices, the Soviet intervention in Afghanistan and the impact of the Iranian revolution.

It has been in a bearish zone from 1981 to 1999 throughout – and I believe no one would have thought of it as investment in those days.

Iraq war, tensions with Iran, fears of weak dollar in the 2000s induced a new price hike for gold. Towards the end of the decade, the financial crisis exacerbated and gold touched new highs.

Everyone anticipated for the event like COVID should kick gold price for new highs, but gold price – although increased in last couple of years, but if you see the trend carefully, it was not because of COVID only, and the trend has been rising since 2019 and COVID only added 6% increase in the price (considering the impact of COVID from March 2020 until Jan 2022). This fact in itself relieves gold from its safe haven title as during the same time the equity markets in the worst ever pandemic in a century resulted in huge returns (66% to be exact – for the same period).

From the long term trend of gold, you can see – although there has been a lot of hype surrounding how gold is considered as the store of value, it really didn’t prove to be so during the 2 decades from the 1980s – in fact from 1981 until 2008 for more than 25 years it didn’t even reach the breakeven price for someone who invested in it considering it as store of value with so many things happening during that time in the world which should have triggered the appreciation in prices. Moreover, the recent pandemic also didn’t do much to the price of gold as mentioned earlier.

You need to balance your portfolio in case you are seriously thinking about investing in gold as with a typical Asian household we already have a good amount of gold in the form of jewelry which in many cases is already reaching 5-10% of the total net worth of family, which is enough to be considered as your insurance from unforeseen events in the world.

I will write another newsletter on how gold performed in Pakistan and what are the options for buying gold in Pakistan specially the available mutual funds with gold price tracking – In fact, a video on that coming soon as well.

In case you missed the videos posted last week, here is the link for all 3: