Why buy gold

Many professional and retail investors view investments in gold as a hedge against risks in the financial system. Two major recessions have occurred in just the last decade: first, the bursting of the new economy bubble and later the mortgage scandal followed by a global financial and later an economic crisis. The still ongoing financial and economic crisis and the government responses have led to a strong increase in government debt in most developed countries like the US and the UK. For that reason, the economic and financial crisis has over the last several months developed into a sovereign debt crisis.

Recognising this, many investors now try to protect their wealth or parts of it by investing in assets which are less dependent on the stability of the financial system. Gold is one asset class, which is perceived as a store of value in the long term.

Gold is a unique asset class. Gold investments have historically shown a low correlation with investments in other asset classes such as stocks or shares, mutual funds, government and corporate bonds and even commodities and other precious metals.

Investing in gold can help to preserve value by reducing the risk of severe losses. The relative independence of gold investments from other asset classes makes investing in gold an attractive strategy for diversifying an investment portfolio. Portfolio diversification is a pillar of risk reduction. The probability of one asset class or a single investment significantly dropping in value is far higher than the chances that a well balanced portfolio of many different investments from various asset classes will depreciate in value significantly.

Over the last decade, gold investments were one of the best performing asset classes. In nominal terms, the price of gold has risen from below 300 US-Dollars to above 1,800 US-Dollars. In contrast to paper currencies like the US-Dollar, the British Pound or the Euro, gold is a limited resource. Gold cannot be inflated. For this reason, gold has historically remained a relatively stable purchasing power, whereas practically all currencies have lost purchasing power in the long run.

The characteristic of gold to retain its value makes gold investments attractive for retirement and pension purposes. Over the past years, gold has gained in popularity as a retirement asset.