Is gold money or an asset?

A store of value is an asset that maintains its value, rather than depreciating. Gold and other precious metals are good stores of value because their lifespan is essentially perpetual. A nation's currency must be a reserve of reasonable value for its economy to function smoothly. Okay, gold is not a cash-generating asset.

So, like metal, it must be a commodity, right? Well, that's true, but only in part. Gold has some industrial utility, that's for sure. However, the demand for technology is limited. According to data from the World Gold Council, it only represents about 17.5 percent of total demand for gold.

However, we know that the demand for gold is actually much higher, since the WGC focuses on annual flows and ignores huge gold stocks and the fact that demand and supply for gold come from marginal buyers and sellers who accumulate a large number of ingots. Therefore, gold is a commodity only in a tiny part; this implies that we cannot value it as copper, simply considering the annual balance between production and consumption. It is recognized that gold has a history of long-term stability. It has had a completely paper-based currency for 45 years, while gold has been a global medium of exchange for more than 5000 years.

With a history of more than 5000 years, gold could be the opposite of “uncertain”. The analysis shows that the optimal weight of gold in hypothetical portfolios is statistically significant, even if investors assume an annual return on gold between 2% and 4%, well below its real long-term historical performance (chart). Indeed, the return on gold has surpassed the U.S. Consumer Price Index (CPI).

Long-term U.S. government due to its numerous sources of demand. Gold is divisible, meaning it can be divided into smaller pieces so that they can serve as a medium of exchange for smaller items. However, studying only the simulated past performance of an average hypothetical portfolio does not allow us to assess how much gold investors should add to a portfolio to achieve maximum benefit.

Over the past decade, institutional investors with an asset allocation equivalent to that of an average American pension fund would have benefited from the inclusion of gold in their portfolio. The gold market is global, so this is as true in New York City or the London Bullion Market Association (LBMA) as it is in South Africa or the Middle East. First, without cash flows, gold cannot be valued using standard valuation methods, such as DCF, etc. It is useful to have cash reserves on hand, but gold is a safe haven that can also serve as a savings vehicle.

Cash is a form of fiat money, which has no intrinsic value because it is not backed by a physical product such as the gold standard. In this scenario, some investors may prefer to hold their assets in alternative investments such as gold, but gold can sometimes be volatile during a turbulent economy.