Investing in gold bullion gets a lot of media attention even though only 1% of people actually invest in gold. But why does this vocal minority of "gold beetles" bother buying gold? Why should a savvy investor with a sound mind buy something as old and potentially outdated as a bar?
Gold bars are different from all other financial assets in that they are isolated from the financial system and their value will never reach zero. Physical investment in gold has no credit risk, no counterparty risk, and cannot simply be lost to a broker or bank crash.
Bullions just sit in Swiss gold vault and quietly watch over their own business, away from banks and other financial markets.
Image Source: Google
Gold bars cannot be minted as the national currency, forcing them to attract savings opportunities while central bankers choose to solve economic problems with unlimited quantitative easing.
Those who choose to buy gold often do better than keeping money in the bank. Check out this infographic comparing gold bars and cash deposits.
Gold investors see their bullion investments as the safest base for their assets and as a safeguard in the financial system. Like any insurance, you hope you don't need it, but you keep it for a good reason.
For this reason, Swiss bankers have traditionally asked their clients to keep the first 10% of their assets in gold bullion, in safes in Switzerland, or elsewhere to act as the safest and most liquid base of their portfolio.
Despite the recent drop in prices, demand for physical gold is very strong as savers in China, India, and western developed countries benefit from lower prices.