Is gold an asset or commodity?

Interestingly, gold was formerly a monetary asset (i.e. financial value), but it is now considered a valuable product, as evidenced by its prevalence in top quality jewelry (p. e.g. Watches, necklaces, rings), electronic devices and medals for awards.

Gold is neither an asset nor a commodity. So is it practically useless or, at best, is it a collector's item? Undoubtedly, some gold investment products may have aesthetic or emotional value (think grandmother's jewelry or some rare coins). And it can be argued that the value of gold is only due to its scarcity and to the expectations that future investors will price it higher than what we have now, just like when we collect baseball cards or stamps. However, this is not the distinguishing feature of collectibles, but of other investments (why do people buy stocks that don't pay dividends?) — and also the media of exchange.

In addition, for most investors, the aesthetic characteristics of gold do not matter, only its monetary aspects are relevant. In the following articles, we will examine how and why gold obtains its fundamental value, how it is used as a currency, and what factors subsequently influence its price in the market, from miners to speculators to central banks. We'll look at the basics of trading gold and what types of securities or instruments are commonly used to expose yourself to investments in gold. We are going to consider using gold as a long-term component of a diversified portfolio and as a short-term intraday trading asset.

We'll look at the benefits of gold, but we'll also examine the risks and difficulties, and see if it lives up to the gold standard. Gold is a physical raw material, just like a commodity. It has an intrinsic value as a commodity (at least the cost of taking it out of the ground and refining it). Do these attributes alone make gold a commodity? After all, today gold is traded in markets as a commodity.

The World Gold Council has conducted an analysis based on the typical allocations of US investment portfolios with different risks, and has analyzed the ideal allocations of gold for each investment objective (Figure 19, appendix I of the full report). Gold has important diversifying properties that stand out during periods of systemic risk. In short, history has given gold a power that exceeds that of any other commodity on the planet, and that power has never really disappeared. However, what it also suggests is the potential rise of gold compared to the performance of commodities in general during the recent reflationary period.

Defenders of this rule argue that this monetary system effectively controls credit expansion and imposes discipline on credit rules, since the amount of credit created is linked to a physical supply of gold. Implementing a direct or complementary position to gold reduces risk without diminishing expected long-term returns. Oil tends to behave more like a risky asset, while gold is generally considered a risk-averse asset (Figure 20, appendix I to the full report). Anything that is rare and sought after can be considered collectible, but that doesn't mean that all gold is collectible.

It is also worth noting that gold represents almost 40% of the total daily OTC open interest on all commodities (a percentage that has been increasing steadily) and that other precious metals represent only 3%. Gold is also affected because the BCOM defines diversification based on maximum weightings for specific commodities and sectors. In addition, the amount of gold allocated to this smaller commodity bucket is usually only a fraction of the bucket itself, further reducing weight. The easiest way to expose yourself to gold is through the stock market, through which you can invest in real gold ingots or in the shares of gold mining companies.

Before we jump on the gold bandwagon, let's first stop the enthusiasm about gold and, first, let's examine some of the reasons why investing in gold has some fundamental problems. The main problem with gold is that, unlike other commodities such as oil or wheat, it is not exhausted or consumed. . .