Gold as an investment alternative

This bachelor thesis aims to inform the reader regarding the characteristics of gold as an investment alternative. The core of the research will be directed towards assessing the value gold provides to an investment portfolio. In the beginning paragraphs, the reader is introduced to the way the yellow metal has been used as money in the past. This short introduction is essential in order to gain a better understanding of how gold performs as a commodity. Moreover, the fundamentals that determine gold’s price will be examined. An informed investment decision can only be made when the determinants of a product’s price are studied meticulously. The writer’s intention is to introduce the potential investor and the financially curious reader alike to the intricacies of the gold market. The benefits of gold ownership as well as its drawbacks are mentioned and it is up to the reader to decide whether gold is indeed worth it. The essay below does not provide investment advice neither in favor nor against gold ownership. Instead, data and expertise have been presented in order to offer an objective view on the matter. Gold is assumed to perform exceptionally in periods of financial disaster and turmoil. The research conducted confirms indeed that gold investors can potentially protect their wealth satisfactorily under such circumstances. On the other hand, investments in gold might not be a desired option for more aggressive and speculative market participants. Gold’s relationship with its two investment competitors, cash and stocks is examined. In today’s economic environment of close to zero interest rates, gold seems to be an attractive way for wealth protection. On the other hand, gold’s returns seem to be quite inferior to the stock market in periods of economic growth. Its volatility though is significantly lower providing a sufficient hedge in times of recession. The role of central banks is also examined in the essay. National governments have played a profound role in the gold market. The degree to which their buying and selling activities affect the market is researched in a separate chapter. Lastly, a projection is made regarding the short-term prospects of gold as uncertainty seems to be the only constant in financial affairs over the last few years