Of course, past performance is never necessarily indicative of future results, and some may argue this comparison is overly generalised. One must also consider the overall economic climate and investor sentiment will influence gold prices, not just specific crises.
Spreading investments across different assets like stocks, bonds and gold helps one reduces overall portfolio risk; if one asset class performs poorly, then others may offset those losses.
Still, there are cons when it comes to holding gold. Consider that gold’s price appreciation tends to be slower than say, that of stocks. You might not see substantial returns on your investment.
Unlike bonds and stocks, gold does not generate income like yield or dividends. Returns from gold depend entirely on a price increase at the time you decide to – or need to – sell what you’re holding, and gold prices can and do fluctuate significantly at times.
Gold is a physical asset, and so one incurs annual storage fees at professional vaults. There are security risks if you decide to store gold at home.
There is a certain opportunity cost, too, when it comes to the liquidity of gold. While it is more liquid than some other investments, selling large quantities of gold quickly can be challenging, especially during downturns.
Ultimately, gold may not be a suitable investment for all investors despite its glittering appeal. As with all investments, each investor has to consider their individual risk tolerance, investment goals and overall portfolio before making a foray into gold.
Christopher Wong is the FX Strategist at OCBC.
