Why Gold Glitters
During Times Of Crisis

There’s another reason for gold’s reappearance in the investment spotlight: its reputation as an effective hedge against inflation.

“A lot of money is being pumped into the world’s major economies, and there’s a fear that that this type of economic responses by government and central banks may lead to inflation in the long term,” says Mgwaba. “Inflation is a key concern for many large investors, particular pension funds which are also long-term investors. Their view is that the value of asset under management will be eroded by inflation and are looking for tools that are effective to hedge inflation and also to achieve long-term sustainability.”

Mgwaba highlights various pieces of research which indicate that during periods when inflation was above 3%, the returns on gold were above that. “In other words, gold helped investors to earn a return and protect themselves from inflation, a best storage of value” he says.

Like any investment, gold splits opinions. One school of thought insists that it should be in everyone’s portfolio, irrespective of market conditions; another dismisses it as being (in Warren Buffett’s words) “withing utility”. Mgwaba falls into the former camp. “The fact that central banks and large institutions have grown to become the biggest consumers of gold through direct acquisition or through gold exchange-traded funds (ETFs) tells us something,” he says. “We need to consider having gold in our portfolio as insurance and to improve our risk-reward profile.”

Or, as Mgwaba puts it: There’s no reason why you should not have gold in your portfolio.