Is gold a commodity or a monetary asset?

Some people regard gold as simply another commodity. However, it can be argued that gold performs differently to commodities in general and more like a monetary asset. Some of the reasons for this are outlined below:

• Gold does not typically move in step with the broader commodities market, especially during times of financial uncertainty and geopolitical turbulence. It is at these times that gold has often outperformed other assets, including a broad commodities index.
•  While the US may have abandoned the gold standard in 1971, central banks maintain huge reserves of physical gold.

Indeed, according to the Refinitiv Gold Survey 2019, in Q4 of calendar 2018 central bank buying recorded its largest quarterly net purchases this century, of 196 tonnes.

This brought total estimated net purchases for the year to 571 tonnes, the highest annual figure since 1971. It also continued a trend in net buying by central banks from the beginning of this decade.

The first quarter of 2019 was also strong, with central bank gold purchases more than doubling year-on-year and Refinitiv expecting another year of elevated demand.

• In the world’s two largest gold consumers, China and India, gold jewellery has been used for centuries as adornment and a store of wealth.

The lead-up to Lunar New Year in late January or early February is one of the busiest gold-buying times in China when consumers purchase various gold products as gifts or as personal investments.

During Indian wedding season, from October to December, large quantities of gold are traditionally bought not only for brides to wear, but also to give new couples what is seen as a time-honoured means of wealth preservation.

•  Gold is no longer used in currency that can be used in our daily transactions but it is highly liquid and readily exchangeable for local currency all around the globe.

In summary, gold is a finite resource that has been valued as a store of wealth for thousands of years encompassing countless periods of political tension and market volatility.

How to invest in gold

For those wishing to add gold to their portfolios, The Perth Mint offers a range of options for the modern investor.

These extend from traditional trade platforms and physical precious metal products to online accessibility and storage. We even offer a smartphone app that puts gold literally at your fingertips, enabling users to buy, sell and transfer gold.

Making gold investment more convenient than ever before, our GoldPass® app is meeting demand by utilising technological advances which are moving the asset firmly into the digital arena.

While gold is no longer used in currency, it could be on the way to re-establishing its traditional role.

More on this in a future blog post.

Find out more about our range of innovative investment solutions here.