In the dynamic and often unpredictable world of business, asset diversification remains a fundamental strategic option for minimising risk and maximising returns. Among the various asset classes, precious metals, particularly gold, may stand out as a prudent choice. Diversifying business assets into precious metals could offer numerous benefits, including enhancing financial stability and resilience. Here’s a closer look at why integrating gold and other precious metals into a business portfolio could lead to a strategic advantage.
1. Potentially A Hedge Against Economic Uncertainty
Gold and other precious metals have long been regarded as safe-haven assets. During times of economic instability, such as inflation, currency fluctuations, changing monetary policy and geopolitical tensions, the value of gold tends to rise. This inverse relationship with traditional financial markets can make gold an effective hedge against economic uncertainty, often protecting business assets from volatility in trading profits and the performance of traditional investments.
2. Preservation of Wealth
Unlike fiat currencies, which can be affected by inflation and devaluation, gold maintains its intrinsic value over time. For centuries, gold has been a reliable store of value, preserving wealth across generations. By diversifying into gold, businesses could safeguard their financial reserves, ensuring long-term preservation of wealth.
2024 marks an historic year with elections in fifty countries, and more than two billion people heading to the polls. This includes the recent UK general election, the US presidential election, and others including France, India, Mexico, and South Africa. Political uncertainty can create market volatility, not least that the advent of a new government can bring changes to tax policy and allowances.
3. Portfolio Diversification
Diversification is a key principle in investment strategy. Including precious metals in a business asset portfolio reduces reliance on any single asset class. Gold and other metals often move independently of stock and bond markets, providing a balance that may mitigate overall portfolio risk and smooth out returns. This diversified approach could enhance financial resilience, allowing businesses to navigate market fluctuations more effectively.
4. Liquidity and Accessibility
Gold is highly liquid, meaning it can be quickly and easily converted into cash. This liquidity is particularly valuable for businesses that may need to access funds swiftly in response to changing market conditions or unexpected expenses. Additionally, gold is globally recognised and traded commodity, ensuring its value is acknowledged and accepted worldwide.
The World Gold Council estimates that physical gold holdings by investors and central banks are worth approximately US$5.1tn. The gold market is also more liquid than several major financial markets, including Euro/Yen and the Dow Jones Industrial Average, while trading volumes are similar to those of US Treasury Bills. For context, Gold’s trading volumes averaged approximately US$163bn per day in 2023.
The scale and depth of the market means that it can comfortably accommodate large, buy-and-hold institutional investors. In stark contrast to many financial markets, gold’s liquidity does not dry up, even at times of financial stress. Importantly too, gold allows many investors to meet liabilities when less liquid assets in their portfolio are difficult to sell, or mispriced.
5. Potential for Appreciation
Beyond its role as a defensive asset, gold also has the potential for capital appreciation. Market demand, limited supply, and geopolitical factors can drive up gold prices, sometimes offering significant returns on investment. By holding gold, businesses could benefit from both its stabilising properties and its growth potential.
6. Diversifying Beyond Gold
While gold is often the centrepiece of precious metal investments, other metals such as silver, platinum, and palladium could also offer unique benefits. Silver, for instance, has extensive industrial applications, making its demand closely tied to technological advancements. Platinum and palladium, or PGMs (Platinum Group Metals), are crucial in the automotive industry, particularly in the production of catalytic converters. Diversifying into a range of precious metals could further enhance portfolio stability and growth prospects.
Central banks accelerated their gold purchases to above 1,000t per year in 2022 and 2023. They acquired the vast majority in the last 14 years after becoming net buyers of the metal in 2010 and own approximately 17% of all gold ever mined.
Accounting for almost a quarter of annual gold demand in the previous two years, many have attributed central banks’ voracious appetite for gold as a key driver of its recent performance in the face of challenging conditions: namely, higher yields and US dollar strength.
Investing in Precious Metals with Your Business Through The Royal Mint
Incorporating precious metals, especially gold, into business assets is a strategic move that could offer numerous benefits. From hedging against economic uncertainty and preserving wealth over time, to providing liquidity and potential for appreciation, gold and other precious metals could strengthen a business’s financial foundation. As global markets continue to evolve, diversifying into these time-tested assets may be something to consider for businesses aiming for long-term stability and success.
If you’re looking to hold gold as part of your business’s asset portfolio, look no further than The Royal Mint. As the home of precious metals, The Royal Mint is suitably placed to offer you a wide range of gold investment products to choose from.
If you’d like to learn more, book an appointment with one of our dedicated account managers by visiting: www.royalmint.com/invest/business-investments/
Notes
The contents of this article are accurate at the time of publishing, are for general information purposes only and do not constitute investment, legal, tax or any other advice. Before making any investment or financial decision, you may wish to seek advice from your financial, legal, tax and/or accounting advisers.
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