Investing in gold has been a popular way for investors to diversify their portfolios and protect their wealth, given that it is traditionally a safe haven, especially in times of high levels of global uncertainty.
Gold has been around for many centuries, and is still being held by many central banks around the world as part of their foreign exchange reserves, in order to maintain global financial influence, stability, and hedge against global crisis.
Historically, gold trading started in Northern Nigeria, where Nigerians traded gold along routes from the Gold Coast (Ghana) to North Africa, trading gold for European products and then coming back to trade those products back home. The Nigerian Central Bank is still investing in gold till today.
The US holds the world’s largest reserve of gold with over 8,000 tonnes. According to the WGC, this represents 4% of the 187,200 tonnes of gold that have been mined to date.
Why Gold is Valuable
Due to the limited availability of gold, its price is highly sensitive to changes in demand. Gold is seen as a ‘safe haven’ investment in that it tends to keep its value as a real physical asset during periods of economic or geopolitical turmoil, and often retains or increases in value when other assets falter.
Tensions in the Middle East and Asia, and more recently the Russia-Ukraine war, have helped the price of gold to reach record highs.
Investors use gold in their portfolio as a form of asset that provides them with an element of diversification that protects their overall assets from underperforming.
Gold, a tangible commodity, is priced in dollars. Given the Nigerian Naira’s historical weakening trend, investing in gold can serve as a hedge against inflation, currency devaluation, and economic instability.
While gold has held value over long periods, it is not immune to market conditions and can experience declines.
Current Price of Gold
Gold opened today trading at an all-time high of $3,391 and is currently at $3,355, as of 12:20 pm Central West African Time. Since the start of the year, gold has gained 44%, rallying since the inauguration of Trump as US president and the introduction of his unpredictable economic policies.
When investing in gold, factors such as supply and demand, interest rates, and geopolitical events can all affect its price.
In recent years, a lot of central banks have doubled down on their purchase of gold, and with the demand going up, the price has rallied ever since. With the increasing Russia-Ukraine war tensions and Trump’s trade wars, more investors and central banks are buying gold.
The price of gold is effectively set in the UK by the London Bullion Market Association (LBMA), whose accreditation is observed globally. There are two types of gold prices:
- Fixed: LBMA members meet via conference call twice daily to agree on a price that clears their outstanding client orders. This is typically used for larger orders.
- Spot: This is a ‘live’ price largely used for buying and selling gold bullion.
How can you invest in gold?
When people think of investing in gold, they often picture physical gold like jewelry, watches, necklaces, or gold bars. However, these can be costly. In Nigeria, there are limited financial instruments that enable investors to gain exposure to gold without purchasing it physically, allowing for smaller, more accessible investments.
Specialist commodities, and exchange-traded funds (ETFs) can provide you with exposure to gold, without the difficulties of trading and storing gold in its physical form
A very easily accessible form of investing in gold is through ETFs. This kind of investment tracks the price of gold. There are several ETFs to choose from. ETFs, like the new gold ETF on the Nigerian stock exchange on the NGX, allow Nigerians to invest in gold.
Buying ETFs is like buying GTCO, Presco, etc. on your trusted broker, and it allows you to invest without owning physical gold.
The price of the ETF adjusts according to the price of gold physically and is sold in units. So basically, you can invest as low as $5 in a gold-backed ETF, given the limit provided by the broker.
Risk of Investing in Gold
The price of gold is not guaranteed, as with any asset class, is subject to fluctuations and can be very volatile.
Sudden Geopolitical and economic factors can significantly influence gold prices. And investing in the commodity does not produce an income or ‘yield’ for investors, unlike savings accounts, bonds, and dividend-paying shares.
Should you invest in gold?
Gold may offer investors a safe haven and a way of preserving wealth in a high-inflation, volatile environment. As with shares, the price of gold is volatile. That said, it has delivered an increase in value over the last 30 years.
Depending on your preference and appetite for risk, you may choose to invest in physical gold, mining shares or gold-based funds and ETFs. However, it is important that any investment in gold forms part of a diversified portfolio.
Your investment can go down as well as up, and you may not get your money back. If you are unsure as to the best option for your individual circumstances, you should seek professional financial advice.
