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Benefits of Gold

Gold vs silver

"Gold was not selected arbitrarily by governments to be the monetary standard. Gold had developed for many centuries on the free market as the best money; as the commodity providing the most stable and desirable monetary medium." -- Murray N. Rothbard

There are myriad reasons why you should consider converting some of your holdings into gold. A brief overview of the primary benefits of gold follows.

Gold as a hedge against inflation

Gold has always served as a strong hedge against inflation. As inflation rises, the purchasing power of paper currencies is severely diminished- the same amount of money buys fewer products. Unlike paper currencies, the price of gold increases as inflation rises. Since 1946, U.S. inflation was at its highest in 1946, 1974, 1975, 1979 and 1980. During those five years, the average real return (the rate of return adjusted for inflation) on stocks was -12.33 percent. The average real return on gold during those five years was 130.40 percent.

Gold as a safeguard against global instability

In today’s integrated global economy, a recession in one country can bring the entire global financial system to its knees. During periods of financial uncertainty, investors rush to the security and value retention offered by gold. At the same time, many governments further devalue their currencies by flooding the market with more currency.

The price of gold has always peaked when public confidence in governments is lowest. For this reason, gold is often called the “crisis commodity”.

Gold as a store of value

Since the earliest days of recorded history, civilizations have prized gold above all other assets. Despite having little tangible value, gold is one of the world’s most desired commodities. As such, gold has always maintained its value.

Gold is different from other precious metals because its worth is derived from the widespread acceptance of gold as a store of value. Demand for other metals like silver and platinum mainly stems from their industrial applications.

The recent decline of paper currencies like the U.S. dollar and British pound reaffirms the importance of having a percentage of your assets stored in a commodity that will preserve its value.

Supply and demand of gold

Because of the current global recession, demand for gold is at a fever pitch. This demand is exacerbated by waning gold production. As supply wanes, demand (and therefore the price of gold) increases.

Portfolio diversification

Spreading your assets across a variety of dissimilar investments is one of the most effective ways to build a diverse portfolio. It makes little sense to split your assets among investments that are positively correlated, or tied to one another. A down market for stocks also spells doom for bonds, because the two investments move in lockstep.

Gold is an ideal investment to pair with stocks and bonds because of its negative correlation to their performance. Revisiting the performance of stocks and gold over the last five decades confirms this fact.

The price of gold versus stock performance (1970-Today)

• The 1970s was great for gold but terrible for stocks
• The 1980s and 90s were great for stocks and good for gold
• The last decade has been great for gold and bad for stocks

Gold is much more than just a shiny metal. Investing in gold offers you a secure way to preserve your assets yet also exposes you to the potential for a further increase in the price of gold.

To learn more about the benefits of gold as an investment option, please browse the rest of our website.