Chances are you may know little about gold or you view gold simply as a precious metal with little value. In an increasingly digital world, you may question what value gold has today and why Malaysians are starting to invest in gold.
Why Should Malaysians Own Gold?
Many Malaysians find they don’t have easy access to the full range of financial products available around the world. More importantly, many Malaysians think they cannot afford them. Because gold is an affordable and accessible asset class, many Malaysians are looking towards gold to grow their wealth, diversify their portfolios and manage their risk.
Gold’s true value lies in the fact that it’s a natural hedge against inflation, currency risk, and economic crises in the financial markets. It’s recognized globally, holds intrinsic value, and is valuable no matter who you are. We are continuing to see an increase in global goal demand.
“Ok, but how can I be sure gold will still be in demand in the future?”
Good question. You don’t have to be a financial expert to know gold is likely to grow in demand globally when you consider the following:
Gold Demand from India and China
India and China alone make up 50% of the annual demand for gold. These two economies have seen much rapid growth and industrialization in the past two decades. Most experts believe that these two countries will continue to prosper and grow in the short, medium, and long term.
There is good reason to believe that China and India will continue to buy gold as their respective countries become richer. For those who rise above the poverty line, they finally have something to save and that something is gold.
Oftentimes, they buy gold because then they can carry their wealth with them in the form of gold coins, chains, and rings which can easily be sold into cash when needed.
Gold Demand in Different Economic Conditions
The demand for gold continues to grow under different economic conditions. In a stable economy, gold tends to operate on an asymmetric basis; meaning, it doesn’t necessarily perform significantly better or worse when market conditions are favorable. It behaves according to the beat of its own drum.
On the other hand, if you believe the global economy is going to be less stable, you’ll find other asset classes taking a downturn (such as in 2008). Gold price history indicates that gold tends to be negatively correlated to other asset classes in times of extreme market stress so in this case you’ll find a rise in gold value.
Gold in Political Instability
Your view on the state of global affairs gives you a better insight into where gold is headed. If you believe that the world is in a better place politically, then there really is no clear speculation on the direction of gold value.
However, if you believe that the global political climate is more unstable, then the trend towards a high gold price trajectory is more likely because gold is considered a safe haven for everyone. In times of political instability, many flock to gold in fear of the weakening dollar.
In fact, since the financial crisis of 2008, central banks and sovereign wealth funds have been strategically buying and storing gold. As previously stated, large emerging economies such as India and China are also stocking up their gold reserves, and for good reason!
In Short on Gold
As one of the earliest financial assets, gold has proven throughout the ages to be a reliable and stable asset globally in good times and in bad. So, why do people still buy gold? Because, the only thing that is worth its weight in gold is gold itself. Malaysians should pause to consider whether gold should be part of their diversified investment portfolio.