Gold is the most popular precious metal in the investment industry. The rate of return for gold investments fluctuated significantly during the period from 2002 to 2022 but generated positive returns in most years of the observed period. The return of gold as an investment reached almost 25 percent in 2020, and the annual average price of gold increased overall since 2015. The rate of return was 0.44 percent in 2022.
Why is gold valuable?
Gold is a precious metal with a number of practical uses, particularly in technology. For example, NASA uses gold to improve its lasers and protect sensitive things in space, including a part of the visor for its astronauts. However, a large share of the demand for gold worldwide is as an investment, particularly by central banks. Gold serves the purpose of an alternative to currency because it is relatively scarce but still has enough mine production to serve the financial sector.
Gold as an investment
Under the Bretton Woods agreement after World War II, the world’s major currencies were tied to the value of gold. This system, called the Gold Standard, ended in 1971. Still, most countries maintain significant gold reserves. Due to this history and the overall faith in the value of gold, the average gold price tends to increase in times of recession, making it an attractive investment in uncertain times.
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