Why should you add gold to your investment portfolio

Dr Wafaa Sbeiti

Investment demand for gold is expanding worldwide, according to statistics from both World Gold Council and IMF data. Total world gold holdings in 2015 increased by 702.5 tons, compared with 176.7 tons in 2014, reaching 32,733 tons in December, their highest level since 2002. As stated, much of the increase is due to China’s upgrade coverage of its gold standard. Between January and April 2016, China bought monthly around 11 tons of gold.

Buying in 2016 was led by Russia, China and Kazakhstan. Together they accounted for around 80 percent of the full year purchases (383.6 tons).

The Official Monetary and Financial Institutions Forum’s Global Public Investor 2016 report, states that “Gold has become increasingly attractive as an alternative to reserve currencies, with the euro, yen, Swiss franc, all weakening against the dollar while emerging market economies have also been keen to diversify away from US assets.”

Here are some reasons, why gold is an attractive asset. First of all, we know that gold is rare. If you took all the gold in the world today and put it together, that cube would have 65-foot size and fit under the Eiffel tower. Today, there’s an estimated 171,000 to 180,000 tons of gold that’s ever been mined. The world’s biggest gold holder is the US, with 8,000 tons, more than four times as much as China’s 1,800 tons, more than five times Russia’s 1,500 tons followed by Germany with 3,400 tons, Italy with 2,452 tons and France with 2,436 tons.

Universally accepted
Gold is universally accepted as money. You can sell a bar of gold anywhere in the world, in the United States, in Japan, Australia or Europe. Gold is universally recognized as real wealth. You can trade gold without worrying about counter party risks. You can go to any civilization around the world with a few ounces of gold and not even knowing the language you would be able to buy everything you need. You cannot say that about any of the paper currencies or assets that people use today.

Gold is safe haven buying
Gold is considered a safe-haven asset throughout history as it has been viewed as a store of value. It is essentially a currency that cannot be manipulated by interest rate policies of any government and has been traditionally used as a hedge against inflation. So moving to gold make you take advantage of the potential inflation that may occur as a result.

“Gold is money. Everything else is credit” is the well-known statement by J.P. Morgan who was one of the most powerful bankers in the world. Gold is the purest form of money because everything else is credit. Literally, everything else you are taught to invest in is simply a paper asset with counter party risks. Stocks, bonds, derivatives and insurance policies and other paper assets, all at someone else’s promises to pay.

The dollar and all other currencies in the world are debt-based currencies that only come into existence when debt is created. The real scary thing is that if all of the money in the world comes into existence like this where then do we get the money to pay the interest? It is a generational debt based, Ponzi scheme. The only way this system functions is that more debt must be created every year in excess of the debt and the interest created the year before. Every generation ends up paying the debts the previous generation incurred. And obviously this can only lead to disaster as there always comes a point when the accumulated debt becomes so large that it becomes impossible to even pay the interest.

Gold is stored energy
Gold is really valued by the amount of energy that is put into finding, the mining and refining of it. It is concentrated labor and energy. Given that we are coming close to the end of an era of relative peace and abundantly cheap energy, it obviously makes sense to own some gold knowing that resources are declining and life will get more expensive and more dangerous.

Gold cannot be printed
The finding, mining and refining of gold is an incredibly difficult process. The bankers can create billions of dollars out of thin air to pay off their buddies but they cannot do that with gold.

Gold can be hidden.
Unlike all your paper assets, gold can be hidden for centuries if necessary. Having an ounce of gold in your hand is a very powerful way of taking back your sovereignty. More importantly it can be used to create generational wealth. Gold investments are extremely portable liquid and easy to store in one’s home.

So, gold is something that everybody should put some of their money in. If you got money in a property, some money in a bank, just put a little of your money maybe five or ten percent in gold. *Note: Dr Wafaa Sbeiti is an Associate Professor, Department Chair at the American University of Kuwait
By Dr Wafaa Sbeiti

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