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Preserve your wealth investing in gold and other precious metals

Preserve your wealth investing in gold and other precious metals

goldGold and other precious metals have always been a way of storing value throughout human history. In ancient Egypt, gold was already used as an exchange method, it was used as money. In fact, the Egyptians were the first to ‘price’ gold and establish their value against silver.

Since then, gold’s intrinsic value has always been attractive to humans, regardless of their culture and has been accepted as an exchange method.

Gold gave rise to the concept of money in itself: portable, private and permanent.

Gold has a unique density (no other metal outside the platinum group is so heavy), it is the easiest to work with due to the ease with which it can be melted, shaped and measured. No metal is more malleable and ductile than gold.

Much of its appeal is due to its chemical simplicity: it does not react to other chemical compounds and therefore does not deteriorate allowing it to remain shiny despite the time. The golden color also makes it a unique and exclusive metal since all others are silver colored, except copper, which corrodes.

Its scarcity and limited supply have made it a powerful tool for storing wealth throughout the world. Although there is a disparity in the calculations, it is estimated that the amount of gold that exists (mined and not mined) is approximately 200,000 tons, of which 180,000 tons (equivalent to a 20-meter long cube in each side) has already been extracted, at a pace of 2,000 tonnes per year.

Most of the gold reserves are held by the central banks of USA, Germany, Italy, France, China, Russia, Switzerland, Japan, Netherlands, and India, making the circulation supply that much smaller.

Preserve your wealth

Gold is the refuge asset par excellence and will never lose value even if the world went bankrupt.

Fiat currencies, which is money by decree and whose value is based on its declaration as money by the State, without which it would have no value.

All world reserve currencies are fiat currencies, based on the faith of its holders in the government and in the country’s economy.

The current fiat money began with the 1971 Nixon Shock, which ended the gold-backed US dollar (to which most of the world’s major currencies were pegged) according to the Bretton Woods Agreements.

Since the US dollar was removed from the gold standard the governments and central banks have had free reign to print money.

This together with the fractional reserve banking system has led to an inflationary spiral, an exponential increase on the money supply and the consequent loss of value of the currency measured by its purchasing power which has fallen massively.

Gold is non-perishable and it is an important asset class to fill 5-20% of any portfolio. It is one of the safest investments to guarantee the maintenance of its purchasing power.

Although gold’s price is volatile and one can obtain gains (or losses) trading with it, this volatility doesn’t necessarily equate to a risky investment. In the long term, gold’s value will always appreciate against fiat currencies.

No matter what happens in the world you will never be worse off by having part of your savings in gold.

I would like to point out that when we talk about investing in gold, we are talking about physical gold, not gold derivatives or paper gold which is an ETF (exchange-traded fund) or an electronic representation of gold.

Needless to say is that the price of gold is deliberately impacted by fake paper derivative markets in which prices are set regardless of gold’s current physical supply and physical demand.

Where to store gold?

By buying physical hold, either coins or bullion, you don’t necessarily have to tie your personal name to it and it can never be taken from you, except by force.

You could buy it and store it in a safe somewhere or you could keep it in a secure storage facility.

It makes sense to keep this physical gold outside the banking sector, in a secure facility where you only hold the key and in a stable jurisdiction you spend at least some time making sure that you have total control of your investment and that is safe.

Some of the best places around the world to hold physical gold in a storage facility include Hong Kong and Singapore. They offer cheap secure storage and neither has any taxable event when you buy or sell gold.

London and Switzerland are preferable in Europe. You can also keep your gold in a free trade zone where depending on your tax situation, it may be possible to avoid capital gains on the sale of the gold.

You have other options

If you are looking to gain exposure to gold but maintaining liquidity, there are offshore banks that offer products such as gold-backed loans where you can buy gold and receive a loan or even gold-backed debit cards, with which your expenses are debited from the amount of gold at market price that you have stored in the bank.

You can also gain exposure by investing in gold mining stocks, although these stocks fluctuate based on other factors such as the performance of the company and are not necessarily linked to the amount of gold that the company owns.

In addition to gold, there are other precious metals that may interest you to diversify your physical assets portfolio.

For example, platinum, which is of great value for jewelry due to its bright appearance, its malleability, density, and non-corrosive properties and remarkable strength. It is also used in fields such as dentistry, armament, and aeronautics.

Or rhodium, a very rare and valuable metal, which is shiny and silver and commonly used for reflection in objects such as lights, mirrors, and jewelry ends. In addition, having a high melting point and the ability to resist corrosion, it has a crucial importance in many industrial fields such as the automobile industry.

Palladium, a white, soft, ductile, malleable and little abundant metal or silver are other options to diversify your portfolio.

That being said, before investing in precious metals it is essential to have a well-defined notion of your objectives and risk profile. Although in the long term this asset class will tend to appreciate because of their scarcity and a growing demand, they are volatile assets so a high exposure to them may not be ideal in case of liquidity needs.

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NOTICE: The contents of this article are not to be considered as a legal opinion or tax advice and should not be relied upon as such. Far Horizon Capital Inc does not hold itself out as a legal or tax advisor. If you wish to receive a legal opinion or tax advice on the matter(s) in this article please contact our offices and we will refer you to an appropriate legal practitioner. Use of our website FlagTheory.com is subject to our terms and conditions.

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