Source: World Gold Council
Gold has been highly valued for thousands of years and is as popular now as it has ever been; as jewellery, as a financial asset and as an industrial product. However the social value that the gold industry adds to societies around the world, especially in poorer countries, is less understood and often misrepresented.
Gold’s value to consumers and investors in developing countries
In much of Asia, the Middle East, and the Indian subcontinent, gold is the best possible protection against upheaval, both political and economic. For men and women throughout the developing world, gold is still one of the most liquid and widely accepted forms of exchange, quite simply the most efficient store of value they possess. Around two thirds of the jewellery purchased in the Middle East and Asia is used as a means of saving in addition to its function as an adornment. The use of jewellery as savings is often important in rural areas where access to a reliable and appropriate banking system is difficult or impossible. Gold also offers protection against a weak currency or high domestic inflation levels, which are prevalent and persistent problems in the developing world.
Gold as a preserver of value (inflation hedge, safe haven, etc.)
Gold is an effective hedge against inflation. In addition, gold is inversely correlated to the US dollar, making it a good currency hedge. As an asset class, gold has all the advantages of being universally regarded as a currency, without what are all too often the disadvantages of being subject to the economic and monetary policies of one particular country’s government.
Gold’s value as an effective portfolio diversifier
Gold is a highly effective portfolio diversifier due to its low to negative correlation with all major asset classes. Over the last 20 years, gold has shown no statistically significant correlation with equities.That applies not just to domestic US equities, but also to international equities, including those traded in London, Tokyo, Frankfurt, and so on.
Gold’s value as a currency reserve
Gold is still considered an important reserve asset by most central banks, even though it is no longer the centre of the international financial system. The most important reason is that gold is the only reserve asset that is no-one’s liability. This means that, unlike a currency, the value of gold cannot be affected by the economic policies of the issuing country or undermined by inflation in that country.
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