Retirement savings is a top priority of many people. It is a common trend to invest in precious metals as it offers exceptional inflationary protection. Of all the precious metals, bullion investment is preferred by a large number of investors. The reason is gold is global money, and it is known and accepted throughout the world.
Despite this fact, many people wonder whether buying bullion for retirement is a good idea. Here are a few reasons why you should invest in bullion as part of your retirement fund.
A History of Holding Value
Unlike paper currency, stocks, or other assets, gold has a long history of holding value. This is a huge reason why people in many countries invest in gold jewellery and pass it on to their heirs. In some Asian countries, investing in gold is a family tradition.
Gold has unique properties. It doesn’t rust; It can be melted on a flame; It can also be transformed into coins or bars. Besides, gold has a beautiful and unique colour, and can be used to make attractive and gorgeous ornaments that preserve their value even if they are used.
An ‘inflation hedge’ refers to an investment that protects you from the decreased purchasing power of the currency.
That is, any currency may lose its purchasing power as a result of inflation, but gold rarely does. In fact, it has a history of being an excellent hedge against inflation. If you look at the timeline, you will find that gold prices rise when the cost of living increases.
Over the past 50 years, investors have noted that during high-inflation periods, stock markets tumble, but gold prices continue to soar. The reason behind this market trend is that when the currency value decreases due to inflation, gold prices in that currency will see an increase in its price.
Hence, financial experts suggest you should invest in bullion as part of your retirement fund as a way to diversify your portfolio.
Deflation refers to the period when business activity decreases, and the economy is burdened by debt. Though it may look counter-intuitive, gold also serves well as a deflation hedge. During the Great Depression of the 1930s, the prices of gold rose sharply while prices of other commodities dropped.
The price of the currency is affected by financial uncertainty as well as geopolitical uncertainty. According to financial experts, there is a deep relation between economic variables and geopolitics. An increase in geopolitical uncertainty leads to a decrease in world GDP growth. As per recent data, geopolitical certainty in Q4 2016 led to a decrease in world GDP growth by 0.33pp.
There have been several examples where gold continued to retain its value in times of geopolitical uncertainties. For example, when the European Union was facing a crisis, gold prices continued to soar. As per financial experts, when the confidence in government is low, the prices of gold often rise.
Since the 1990s, most bullion coming into the market was from global central banks vaults. However, the selling of bullion by global central banks has reduced since 2008. At the same time, the production of gold from new mines has been declining since 2000. As per recent data from the World Gold Council, the production of gold from gold mines reduced from 3300 metric tonnes in 2018 and 2019 to 3200 metric tonnes in 2020.
Though new gold mines have been planned worldwide, it can take around five to ten years to bring gold mines to their full production capacity. Hence, the supply constraints are more likely to stay here for long.
There has been a consistent increase in demand for bullion in the last few decades. The reason is that gold is intertwined with the culture of many countries.
For example, In China, gold bars are a traditional form of saving. There is a massive demand for gold in India due to the higher demand for gold jewellery, where many occasions and celebrations (like weddings) are incomplete without gold jewellery.