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Gold has been one of the best-performing assets over the past year, reaching new all-time highs in October 2024. With its price up nearly 30% on a year-over-year basis and trading at USD2,746 per ounce as of 31 October 2024 (according to Trading Economics), gold continues to attract attention from investors.
Gold’s appeal can be said to be both historical and practical. As a precious metal, it has been valued for centuries and still widely used today in jewellery, ornamentation and industrial applications. However, what makes gold unique is its dual role as an investment asset. Despite not generating income like stocks or bonds, gold is still a popular investment for many. Here are 5 reasons why.
#1 Diversification & Portfolio Protection
In any investment portfolio, a key priority should be on minimising risks. Gold plays a significant role in achieving this by acting as an excellent diversifier. Its low correlation with traditional asset classes, such as stocks and bonds, makes it a unique asset to hold.
This low correlation means that gold prices often move independently of stock and bond markets. Such price behaviour is precisely what we seek in a diversifying asset, as it adds stability to a portfolio. Notably, gold prices tend to rise when stock markets are falling, providing investors with a valuable buffer against losses during market downturns.
This defensive nature makes it especially attractive in uncertain times. Recently, we’ve seen gold reach new highs amid escalating conflicts in the Middle East and the short-term volatility surrounding the U.S. presidential election, highlighting its appeal during periods of geopolitical and economic instability.
If you want to add some gold exposure to your existing investment portfolio, you can do so by investing in a gold ETF such as the SPDR® Gold Shares (SGX: O87) (SGX: GSD). The ETF tracks the price performance of gold without the need for you to own any physical gold bullion or coin.
#2 A Hedge Against Inflation
Another reason to consider gold is its ability to act as a reliable hedge against rising inflation. Gold has consistently retained its value over time, and this “store of wealth” becomes even more attractive during periods of rising prices.
In an inflationary environment, cash sitting idle in a bank loses purchasing power, as goods and services become more expensive. In contrast, gold tends to maintain or even increase in value, preserving your wealth. This is largely because gold is a finite asset; which means there’s only so much of it in the world, thus its supply is naturally limited and this helps it retain and grow its value over time, especially during high inflationary period.
Historically, gold has demonstrated this inflation-hedging quality. For example, during the Global Financial Crisis (GFC) and in the years following, from 2007 to 2011, the price of gold more than doubled as concerns grew over the inflationary effects of the Federal Reserve’s massive quantitative easing (QE) measures. This period of gold’s ascent coincided with a sharp decline in U.S. stock markets, where stocks lost nearly 50% of their value between 2008 and 2009.
More recently, gold again responded positively during the global crisis triggered by the Covid-19 pandemic, initially rising as a safe-haven asset. As global inflationary pressures increased in the years following the pandemic, gold continued to climb, reaffirming its role as a resilient asset during economic turbulence and inflationary cycles.
By investing in a gold ETF such as the SPDR® Gold Shares as opposed to leaving your idle cash savings untouched, investors can benefit from gold’s inflation-hedging properties.
#3 For Wealth Preservation
Gold’s long-standing history as a reliable asset for wealth preservation makes it a key component for investors seeking to build a robust, defensive investment portfolio. Unlike many other assets that may be affected by inflation or market volatility, gold has historically demonstrated an ability to retain its purchasing power over time, making it an effective store of wealth during periods of economic uncertainty.
Gold’s legacy as a store of value dates back thousands of years to ancient civilisations that recognised its worth and durability. Through periods of war, economic upheaval, and changing financial systems, gold has consistently served as a reliable store of wealth. This historical resilience adds to its appeal for modern investors, who view gold as a timeless asset capable of preserving value across generations. For those planning to pass wealth on to future generations, gold offers a sense of security that few other assets can match.
In recent years, central banks worldwide have increased their gold holdings, a clear signal of gold’s appeal as a wealth-preserving asset that continues to be relevant in our modern world.
This trend highlights gold’s importance, not only for individual investors but also for nations seeking to diversify their reserves. When central banks add to their gold reserves, it reflects a strategic move to secure assets that they believe would retain its value even in times of global economic instability.
With its unique characteristics and proven track record, gold remains an invaluable asset for wealth preservation. For investors looking for a convenient way to add gold to their portfolios, gold ETFs like the SPDR® Gold Shares offer an accessible entry point, providing exposure to the metal’s wealth-preserving benefits without the need to handle physical gold.
#4 Currency Risk Mitigation
In today’s volatile currency environment, gold stands out as a protective asset against sudden, unpredictable currency movements. Recent events like the weakening of the Japanese Yen and the sharp drop in the British Pound after then-Prime Minister Liz Truss’s “mini-budget” illustrate how quickly currency values can shift, affecting investments and purchasing power.
Currency risks are incredibly challenging—if not impossible—to forecast. As recently as 1971, most global currencies were pegged to the “Gold Standard,” which shows gold’s historic role as a stable measure of value. Unlike currencies, which are susceptible to economic policy changes and geopolitical pressures, gold are less affected by government decisions, maintaining its value independently.
Gold’s stability makes it an effective hedge for investors concerned about currency fluctuations. By incorporating gold into a portfolio, investors can protect against currency risks, preserving capital when other assets may decline. With the SPDR® Gold Shares, investors have the flexibility to choose between U.S. dollar or Singapore dollar-denominated share classes, allowing Singapore-based investors to gain exposure to gold without facing U.S. dollar currency risk.
#5 Strong Liquidity
Finally, gold offers a level of liquidity that few assets—aside from stocks—can match. As a globally recognised and highly valued asset, it is easily convertible into cash, with established gold markets operating around the world. This widespread acceptance and historical reputation make it straightforward for investors to buy or sell gold as needed.
The ample trading volumes in gold markets ensure that investors can enter or exit their positions with minimal friction, adding flexibility to their portfolios. Liquidity is often an overlooked feature, but it can be a crucial advantage, especially for investors who may need quick access to cash in unforeseen emergencies. With its strong liquidity profile, gold provides an asset that investors can rely on to meet unexpected financial needs without delay.
Why Investing In Gold Through An ETF Makes Sense
If we choose to invest in gold, it’s often most practical to gain the asset’s benefits without the complications of physically owning it.
This is because physical gold requires secure storage and incurs additional costs for insurance and safekeeping, which can be cumbersome and expensive for individual investors. Instead, buying a gold ETF provides a straightforward and cost-effective way to access gold’s advantages without these logistical issues.
One of the largest and most liquid gold ETFs globally is the SPDR® Gold Shares, which is listed on the Singapore Exchange (SGX) for Singapore investors. This ETF offers both U.S. Dollar and Singapore Dollar-denominated share classes, giving investors in Singapore the flexibility to choose their preferred currency.
With a gold ETF like SPDR® Gold Shares, investors can enjoy the convenience, accessibility and liquidity that comes with exchange-traded assets. Gold ETFs provide transparent pricing and eliminate storage and security concerns, making them an ideal investment vehicle for those looking to add gold to their portfolios. This structure gives investors the chance to benefit from gold’s potential for wealth preservation and inflation hedging while enjoying the ease of trading on a major exchange.
Important Disclosure: Sponsored by State Street Global Advisors Singapore Limited (Company Reg. No: 200002719D, regulated by the Monetary Authority of Singapore). All forms of investments carry risks, including the risk of losing all of the invested amount. Such activities may not be suitable for everyone. The information provided does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell an investment. It does not take into account any investor’s particular investment objectives or investment horizon. The prospectus in respect of the Singapore offer of the SPDR® Gold Shares (the ‘Shares’) is available at https://www.spdrgoldshares.com/singapore/. The value of Shares may fall or rise. Investors should read the prospectus before deciding whether to purchase Shares. Shares in the Trust are not obligations of, deposits in, or guaranteed by, World Gold Trust Services, LLC, SSGA or any of their affiliates. You may wish to seek advice from a financial adviser before making a commitment to purchase Shares. In the event that you choose not to seek advice from a financial adviser, you should consider whether the Trust is suitable for you. Investors have no right to request the Sponsor to redeem their Shares while the Shares are listed. It is intended that holders of Shares may only deal in their Shares through trading on the SGX-ST. Listing of the Shares on the SGX-ST does not guarantee a liquid market for the Shares.
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Diversification does not ensure a profit or guarantee against loss.
Past performance is not necessarily indicative of the future performance.
Assets may be considered “safe havens” based on investor perception that an asset’s value will hold steady or climb even as the value of other investments drops during times of economic stress. Perceived safe-haven assets are not guaranteed to maintain value at any time.
There are risks associated with investing in Real Assets and the Real Assets sector, including real estate, precious metals and natural resources. Investments can be significantly affected by events relating to these industries.
ETFs trade like stocks, are subject to investment risk and will fluctuate in market value. Changes in exchange rates may have an adverse effect on the value, price, or income of an investment. Further there is no guarantee an ETF will achieve its investment objective.
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