My Financial Friend, do you know why gold is used as an investment instrument and even categorized as a safe haven ? Come on, see the explanation in the following article.
- Many investors secure their funds in the form of gold because gold is considered a safe haven in times of crisis.
- The precious metal gold is one of the safest investments in terms of price stability and value.
A Brief History of Gold
Gold is a precious metal that is one of the oldest means of payment or exchange in the world. Gold coins are known to have been in use since 700 BC and still continue today as in Saudi Arabia.
The gold standard system was implemented as a reference for determining the value of a country’s currency since 1821. The British government was the first to apply it to determine the value of the pound sterling.
Then followed by several European countries such as Germany and France and then by the United States, and ended during World War II.
According to Aristotle, there are five reasons gold has been the best money in the last four decades, namely:
- Convenient to use, carry and store.
- Has a clear intrinsic value.
- Consistent/measurable consistently
- Has high durability
- Can be broken down without reducing the value
My financial friend can find out more about the history of gold in this article
Facts and History of Gold, Let’s Get to Know This Metal!
Gold Today As An Investment
At present, how about the development of the value of gold, especially in Indonesia? Let‘s take a look at the graph of the development of gold prices in Indonesia over the last 10 years.
From the graph above, we can see that during the period 2012 to 2019, the price of gold per gram was stable in the range of $34.87 to $41.84.
It was only in 2020, the price of gold soared to the range of $66.26, even touching the price of $69.75 in trading.
This drastic increase in the price of gold per gram occurred during the early days of the Covid-19 pandemic. At that time, when investors felt the direction of the investment world was uncertain, they secured a lot of their funds in gold.
Due to the large demand, the price of gold rose high in a short time. This happens because gold is an investment that is included in the safe haven category in times of crisis or uncertain conditions.
Why is Gold in the Safe Haven Category?
Here are some factors that make gold a safe haven.
#1 Stable Value
According to Investopedia, a safe haven is a type of investment whose value is expected to survive or grow when there is a shock in the market.
When the shock occurs, investors will look for safe-haven investment instruments to withstand or reduce losses from the value of their investment.
#2 Not Affected by Interest Rates
Gold is a commodity that cannot be printed like money, its value is not affected by interest rates, and cannot fade. Thus, making the value more resilient in the face of uncertain market conditions or experiencing a sharp decline.
This makes gold one of the safe-haven investment choices by investors.
#3 National Foreign Exchange Reserves
Not only investors, this also makes many countries in the world reserve their foreign exchange in the form of gold. So when something is uncertain or an economic crisis occurs, the country still has assets with a stable value.
Reasons to Have a Precious Metal Gold Investment
From my explanation above, my Financial Friend can take some positive things if you want to have an investment in precious metal gold.
- Gold is a commodity with a stable value.
We can see from the graph the price movement for 10 years. Despite the decline, the long-term trend of the price tends to rise.
- Has a high value.
Due to its non-reprintable nature like money, the scarcity of the basic ingredients, and the inability to fade, gold will always have value.
- As one of the assets that have high liquidity.
Gold will always have value if we sell it at any time, so it is easy to convert it into money in an emergency.
- Safe haven
Because the price movement is not the same as stocks and bonds, it would be better if we have gold as safety from our other assets in times of crisis.
Things to note
Although gold is one of the safest investments, there are several things that my Financial Friend needs to pay attention to when you want to invest in precious metal gold.
#1 Storage Place
Precious metal gold requires safe storage. This will increase the costs you incur, such as renting a safe deposit box at the bank or insuring the gold.
You can also watch the following video to make it clearer.
Although easy to cash, not flexible to sell as needed. For example, you have 10 grams of gold with a price per gram of $59.28, then the value you have is $592.82.
If you only need $348.69, then the gold must still be sold in its entirety. So, there is a difference in the value of $244.08 which has become cash and is not used.
This can be overcome by having gold fractions with small and varied grams.
If you expect high profits, then you need a longer period of time to be able to achieve the maximum profit increase in value. Therefore, adjust your goals with the required period of time, before investing in gold.
Tips for Starting Precious Metal Gold Investment
There are three tips that you can follow when you want to start investing in precious metal gold, namely:
#1 What is the purpose of having gold as an investment option?
Goals are always the right foundation in determining which investment to choose. Gold is a precious metal suitable for long-term purposes and to secure assets in times of crisis or emergency conditions.
#2 How much gold is a good investment?
Actually, there is no definite value to calculate how good an investment is, other than you yourself who can adjust to your abilities and needs.
Because most investors choose gold as a diversified asset from all their portfolios. The rule of thumb that can be suggested is that 10% of their assets are in gold. However, it is advisable to always review the portfolio periodically.
#3 When is the right time to invest in Gold?
Gold should be bought gradually. It is also recommended to buy small quantities (grams) to cope with price fluctuations and make it easier when you want to sell in certain quantities.
From some of the facts above, it can be concluded that it is true that gold is a precious metal as a safe investment. Safe in terms of price stability and value contained.
On the other hand, gold is very suitable if used as an asset diversification that can maintain the overall portfolio value in times of crisis.
So, adjust the type of investment to your current financial goals and conditions. Getting carried away by trends will only make you take a path that is not necessarily what is expected and needed. And no less important, let’s invest in instruments that we understand.