Gold against unrest

Gold against unrest
25 December 2012

UNTIL 15th August 1971, the US dollar was directly linked to gold. Before then, each dollar could be redeemed for its equivalent value. Money was stable and inflation wasn’t as much of an issue as it is nowadays, especially with the current climate of political and financial turmoil.

Unsteady climates

The Syrian lira has lost around 46% of its value since the Syrian revolution for freedom and change erupted on March 15th 2011. Similarly, Egyptian stock market lost $4.7 billion after the controversial constitutional declaration of President Morsi that was issued on November 22nd, giving him broader powers. This decision was met with immediate protestations from the Egyptian people. EGX30, the main index of Egyptian Exchange, has fallen by 11.6% in the crisis, and has recovered by only 4.98% after the annulment of the constitutional declaration on December 9th.

These are only two examples of what is happening in the Arab World and the effect of political unrest on economy. Read the headlines of any newspaper and you’ll see evidence of the revolutions in the Arab World, the Eurozone financial crisis, and the expected 'fiscal cliff' in America - in short, the economic climate is to say the least, unsteady, and investments in the markets mentioned above could be about to take a turn for the worse.

Golden choice for investors?

It’s at such times of political and economical unrest that precious metals, such as gold, have historically been viewed as a safe haven and a hedge against inflation.

In the last 5 years, the value of gold has increased by more than 113%, although it has been inconsistent in its rise. The performance of gold in 2012 was not as good as ecpexted, but in the year before, gold was one of 2011's best performing assets. It gained nearly 15%, outperforming both U.S. and EM (Emerging Markets) equities, and commodities in general (as measured by the GSG commodity ETF).

Investors are advised to have gold in their investment portfolio, as a matter of diversifying their assets and reducing risk. However, precious metals are still non-productive assets and on the long run, returns from gold and silver rarely outperform returns from productive asset classes like equities.

Experts recommend that an investor should invest only 5 to 15% of his total assets in gold, unless you are an active investor who deal with gold ETFs and can spend a lot of time rebalancing your portfolio.

Here at cashy we try to keep our community as informed as we can about investing in gold, especially as alternative investment. Here are 6 ways to tap into the gold rush. Still, the question remains: is gold really a safe haven?

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HAVE you invested in gold? Share your experience with cashy community below…


  • Colin

    Great article Mohannad. I am wary of gold, the price spikes are so irrational, up 10% one month, down 10% the next. My own portfolio follows the argument made by the Wall Street Journal, the headline says it all - "How much gold do investors need - Zero should suffice."

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