1) In Long-Run
During financial crises, gold can serve as a shelter for investors, offering a level of stability and security unmatched by other investment products. With time periods of up to a year, gold can serve as a hedge for a number of international equity and debt markets. This suggests that gold investors may be better able to withstand short-term market volatility, thus lowering their overall risk exposure. (Bredin Don et all, 2015)
2) Part of Investment
An ideal portfolio’s allocation of gold will vary depending on a variety of elements, such as the investor’s risk tolerance, investing objectives, and market conditions. Research have found that depending on the other assets in the portfolio, ideal portfolios have variable percentages of gold. The TR/J CRB Index and gold portfolio, for instance, has a 100.0% allocation to gold. In this one-component portfolio, gold serves as the “ideal” replacement for investments in commodities. In this situation, gold is employed as a safe-haven asset and an inflation hedge. (Katarzyna Mamcarz, 2015)
3) Investment Portfolio
A significant asset for investors wanting to diversify their portfolios for a long time has been gold. The price of gold rose dramatically between 2000 and 2006, making it a desirable addition to a portfolio. For investors wanting to diversify their portfolios, the low correlation of gold with other assets is crucial. Investors can lower their portfolio’s overall risk by including gold in it. This is so because, when the economy is struggling, gold often outperforms other assets like stocks and bonds. (Nadeshda et all, 2007)
4) Gold Investment
Gold investment is still a relatively new and under-promoted phenomena despite the fact that the central bank has produced gold coins and the commercial banking sector has released a few gold-related products. Despite this, a survey of Malaysian employees reveals a relationship between gold investment and willingness to take financial risks. Financial risk tolerance, gold investment attitude, subjective norms, and perceived behavioural control were the key predictors for gold investing behaviour, with an explained variance of 30.4%. The outcome of financial risk tolerance as a positive significant predictor is not what was anticipated because gold investments are seen as safe investments. Therefore, gold investment knowledge is not important in forecasting investment on gold. In addition, gold investment subjective norms outperformed the others in predicting gold investment behaviour. (Fauzi A. W. Ahmad et all, 2017)
5) Gold and Exchange Rates
Market interdependence between gold and exchange rates was examined for several time scales, and it was discovered that from January 2000 to March 2013, there was a positive correlation between gold and the US dollar’s decline against a diverse range of currencies for all time frames. The analysis for mixed gold-currency portfolios confirms the value of gold in currency hedging and downside risk management at various investment horizons, even though the benefits are only available to certain types of portfolios, namely those whose weights are optimally determined, and the size of the benefits varies with investment horizons. (Reboredo et all, 2014)
6) Equity risk
A number of variables, including global economic conditions and cultural preferences, have an impact on the price of gold. In Malaysian society, gold is highly regarded, and many people and families see it as a significant symbol of wealth and status. As a result, cultural factors frequently influence the demand for gold in Malaysia, and prices might change as a result. According to research, gold can also be used to protect against equity risk on the Malaysian market. This implies that as equity prices decline, the price of gold may increase, offering investors some security and stability. For investors wanting to diversify their portfolios and guard against market volatility, this inverse link between gold and equities prices is a crucial factor to take into account. (Sabry et all, 2018)
7) Bitcoin replace Gold
Bitcoin and gold are two potential investment assets that investors wishing to diversify their portfolios may want to take into account. Even though the qualities and attributes of these two assets differ greatly, they can both provide important advantages to investors. Since it has consistently kept its value over time and offers an unrivalled level of stability and security compared to other financial assets, gold has long been regarded as a safe haven asset that can protect against inflation and market instability. A relatively new asset class that has grown in prominence recently is bitcoin. It is a virtual currency that uses blockchain technology to function. Bitcoin has the potential to provide investors with large profits, but it also carries a high amount of risk and volatility. (Henriques, Sadorsky, 2018)
8) Mining
In this analysis, the investment climates for the gold mining industries in the USA and Australia are contrasted. The industries of these two major gold-producing countries are very similar, and there are signs of a developing gold mining sector in both the USA and Australia. Each nation has seen a sharp rise in the production of gold as well as more recent increases in the mining of refractory ore and the expansion of underground operations. Both countries went through a significant rationalisation movement in the 1980s that resulted in the consolidation of some gold-producing businesses and the elimination of others. (C Linda Slater, 1996)
9) Lending
The second tool used to control gold prices is gold lending. From the early 1980s, a company has emerged in which a material, specifically gold, is lavishly leased out. Gold that is “lying around uselessly,” so to speak, is lent to the mines in so-called “gold-leasing” deals. This gold is typically kept in the vaults of central banks (to a smaller degree there was also lending to fabricators such as jewellers for the purpose of financing and hedging). The banks act as middlemen in these transactions, much like they would in a typical loan. In the language of finance, these banks are referred to as “bullion banks.” These banks lessen the danger of individual miners defaulting for the central banks. Additionally, they handle intricate tasks like selecting creditworthy mining companies. In exchange, these mediating banks receive a fee that is customary in business. The banks sell on behalf of the mines the borrowed gold in the market. Then the mines use the sales proceeds for investments – for instance, in new mining equipment. (Dimitri Speck, 2013)
10) Returns
There has been a lot of study done on how gold behaves as an investment asset. Gold does not outperform equities over the very long run, or for several decades. Gold, however, reacts very strongly and for shorter periods to concerns about inflation, stock market declines, currency crises, and financial instability. In this study, we use both conventional financial variables—such as equities returns, equity volatility, oil prices, and the euro—and a decision tree methodology to examine how gold prices behave. We also test the new Cleveland Financial Stress Index’s ability to predict changes in gold prices using this metric. We discover that gold returns rely on several variables under different regimes. (Malliaris A. G. et all, 2015)
11. Investable
The gold market has experienced a unique time over the last 20 years. The market went through an unparalleled ten-year boom, which was followed by a significant price drop. Study demonstrates gold’s capacity to lower downside risk and hedge currency risk by taking into account its function at various investment horizons for various portfolio types. This means that gold can offer a level of stability and security that is unequalled by other financial assets, especially over longer time frames. Because of how well gold has performed as an inflation hedge over a very long investment horizon, it has been referred to as the “golden constant.” Hence, over, say, 100 years, actual gold returns are zero. With a comparable, extremely long investment horizon, real returns for stocks are much higher, around 7%.
References
A. W. Ahmad Fauzi & A. R. Husniyah & S. Mohamad Fazli & O. Mohamad Amim, 2017, Financial Risk Tolerance as a Predictor for Malaysian Employees, Gold Investment Behavior, Regional Studies on Economic Growth, Financial Economics and Management, pages 63-76, Springer.
A.G. Malliaris, Mary Malliaris(2015), Finance Research Letters, Volume 13, page number 45-53, May 2015, United States.
C Linda Slater (1996), National Resources Forum, Volume 20, Issue 1, page number 37-48, February 1996, United Nations.
Demidova-Menzel, Nadeshda; Heidorn, Thomas (2007), Gold in the investment portfolio, Working Paper Series, No. 87, 2007, Frankfurt School of Finance & Management, Frankfurt.
Dimitri Speck (2013), Palgrave Macmillan Books, in: The Gold Cartel, chapter 0, pages 41-43, 2013, Palgrave Macmillan.
Don Bredin, Thomas Conlon, Valerio Potì (2015), International Review of Finance Analysis, Volume 41, page number 320-328, October 2015, Ireland.
Irene Henriques, Perry Sadorsky (2018), Journal of Risk and Financial Management, August, 2018, Schulich School of Business, York University, Toronto, Canada.
Katarzyna Mamcarz (2015), Joint International Conference 2015, May 2015, Maria Curie Skłodowska University, Poland.
Reboredo Juan C., Rivera-Castro, Miguel A. (2014), International Review of Economics and Finance, Volume 34, page number 267-279, November 2014, Spain.
Sabry, Saajid and Masih, Mansur (2018), Munich Personal RePEc Archive, Paper No. 91584, January 2019, INCEIF, Malaysia.