Gold - A safe haven asset

Precious metals and gold in particular have been regarded as a valuable asset and a safe form of investment for thousands of years.

25 nov 2019

The popularity of the yellow metal is based on the capacity for production of jewellery and coins as well as broad industrial usage. In addition, due to its unique value, anchored in its rarity, Gold has always been recognized as a global currency. That is why the International Monetary Fund (IMF) and many central banks around the globe hold Gold in their reserves.

Investors have long seen Gold as a safe haven asset, particularly in times of financial market uncertainty and periods of economic stress. The yellow metal may be seen as valuable insurance against the persistent risks of greater equity market volatility, rising inflation, or recurrent geopolitical tensions.

Gold is an attractive real asset because adding it to investors' portfolios which are primarily invested in equities and bonds, brings in more diversification and can help to mitigate downside risks. In fact, adding gold to an equity-oriented portfolio has improved its risk adjusted returns 75% of the time over the last 27 years.1

Should you invest directly or indirectly?

Investors can invest directly in physical Gold in the form of coins or bars which can be stored in bank safe deposit boxes or of course kept at one's home.

Alternatively, investors can invest indirectly in Gold with physically backed Exchange Traded Products (ETPs) offering a balanced blend of simplicity, convenience, security and cost-effectiveness. ETPs can be traded throughout the day on exchanges just like stocks and held safely in their securities account.

Exchange Traded Funds (ETFs) offer investors the highest level of security as compared to the option of investing in other types of ETPs. ETFs are fully backed by actual Gold deposits. From a legal perspective, the fund structure ringfences the Gold from the issuing financial institution for the benefit of the ETF's shareholders. Exchange Traded Commodities (ETCs) in contrast are like certificates debt instruments that can bear potential default issuer risk.

Safety-oriented investors will prefer ETFs exclusively invested in physical Gold following the London Bullion Market Association (LBMA) specific requirements in terms of minimum quality standards. Moreover, investors should consider that the Gold is lodged with reputable custodian banks in Switzerland. Gold ETF offers investors the right to redeem the Gold in-kind in all trading units between 1 gramm and 12.5 kilograms.

With UBS Gold ETFs you can efficiently access the benefits of Gold.


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