Whether worn as jewellery or held in investment grade bars, tablets or coins, physical gold and silver are some of the world’s oldest asset classes. The demand for physical gold as an investment remains strong today. Over the last 20 years, this physical demand has continued unabated.

The factors that have contributed to this demand in owning Gold includes

Capital growth returns

As with any investment, one should take a long-term view. For example, since 1970, the price of gold in Australian dollars has risen from $1.47 per gram to over $46.83 per gram by the end of 2021. This is a strong performance and outperforming against cash.

Inflation

Year 2021 Australian dollar is worth only 8% of a dollar in 1970. Aud $1 in 1970 is equivalent in purchasing power of about Aud $12.12 in 2021 meaning something you can buy for Aud $1 in 1970 now you have to pay $12.12.

Low interest

Historically, gold performs well in environments where interest rates are low and particularly when after inflation (“real”) returns are below 2% per annum. When people are earning very little on their cash, or that return is less than inflation, they withdraw their savings from banks and move it into other asset classes that will provide a fair return. With Australia and much of the developed world in an environment where interest rates are at record lows and likely to stay low for some time yet, investors should consider owning gold to help boost portfolio returns.

Portfolio diversification

Investors should pay attention to the saying that you shouldn’t put all your eggs in one basket likewise it applies to when constructing an investment portfolio. Over the long term, asset classes like equities and bonds have been shown to be great investments, but the importance of diversification is key.

Precious metals, and in particular gold, are great diversifiers because they historically tend to rise in value when other assets are falling. In periods where the stock market experienced major falls, gold has usually produced positive returns in addition to exceeding those of the traditional safe-haven, cash – demonstrating that including gold in your investment portfolio typically helps balance out your investment returns.

Liquidity & movable asset

Bullion is equivalent to cash. The nice thing about the market for bullion is that it is well-defined. It trades more like stocks—which are priced on a daily, ongoing basis—than they do like collectibles such as fine art, classic cars, or baseball cards. Gold is one of the most liquid assets for these reasons:

• Average daily volumes of gold traded are very high

• Both big and small investors can participate in the gold market, starting at just individual bars and coins

• Gold prices can be accessed 24/7