Types of gold investor

Investors may buy gold as an investment because they are either one of, or a combination of, the following:

Asset allocator

Traditional asset allocation strategists used to recommend exposure to gold on the grounds of diversification. Although the inclusion of gold in portfolios has largely been abandoned since the 1980s, it is once again being considered by some asset allocators.

Cacheur

Physical gold can be anonymous. Gold is a very soft metal, meaning that (assuming the gold is in the physical possession of the owner) the bar's serial number can be altered or obliterated with a hammer and chisel. If the bullion's ownership is not recorded anywhere the gold can become untraceable. Cacheurs seek to hide part of their wealth from their spouse, family, tax authorities, creditors, thieves, invaders or others. The density of gold allows them to store a large value in a very small space, without fear of depreciation or erosion over a long period of time. A metric tonne of gold (1,000 kg or 2204.6 pounds) would be equivalent to a cube of side 37.27cm (1 ft 2? in), or roughly the size of a basketball. This small cube would contain 32,150 troy ounces, and be worth about $19,200,000 (June 29th, 2006).

Currency speculator

Since the main gold market is priced in US dollars, speculators who believe the dollar will decline may buy gold. They think that if the dollar declines, the gold price will remain constant in other currencies, thus rising in terms of the U.S. dollar. Gold may also be bought if they feel that a different currency will decline, since they expect the dollar price to be stable, but the foreign currency price to rise. Many currency traders treat gold as the fifth world currency, after the US dollar, European euro, Japanese yen and British pound.

Gold bug

Gold bugs, in the traditional sense, believe in, fear, or even hope for the Second Great Depression or Armageddon, and believe that by holding gold they will survive and prosper.

Hoarder

Some investors respect gold as a long-term store of value, and seek no profit, other than to maintain their purchasing power. By buying gold and hanging on for the long term, they believe they can keep their wealth intact.



Inflation hedger

For centuries gold has remained a store of value. It has performed this function best in times of high inflation. Investors thus buy gold to protect themselves against a rise in inflation and a decline in the value of fiat money.

Libertarian

Libertarians may use privately issued digital gold currency, in preference to fiat currency, for reasons such as lack of trust in fractional-reserve banking or monetary policy.

Portfolio hedger

Similar to asset allocators, except the purpose of the investment is as an insurance against unforeseen calamities which may affect the price of other investments negatively. Portfolios that contain gold are better able to withstand market surprises than those that do not. Some recent independent studies have suggested that traditional diversifiers, such as bonds, property and hedge funds, often fail to stand up to market stress and may sell off with equities in times of uncertainty. Even a small allocation of gold to a portfolio significantly improves its performance during unstable periods. These individuals believe that certain events, if they occur (e.g. war or economic crisis), may have a negative influence on the value of their other investments, but the opposite effect on the value of their gold.

Speculator

Speculators attempt to make a profit by predicting the gold price. They may think that macroeconomics are affecting the demand for gold, or believe they have detected a market trend showing them the future price direction.