As a global currency, an investment and simply a thing of beauty, gold has held an allure for thousands of years. For the investor, that allure is largely to do with gold’s proven ability to preserve value over time and be a good diversifier within a portfolio.

Safe haven
Gold is among only a handful of financial assets that is not matched by a liability. It can provide 'insurance' against extreme movements on the value of traditional asset classes that can happen in unsettled times.

In fact, statistical analysis shows that over the past thirty years, the correlation between gold and the Dow Jones Industrial Average actually declined during the worst 30 months of the equity index – an indication that investors in gold had the protection they sought when they needed it the most.

Completely free of credit risk, although it bears a market risk, gold has always been a secure refuge in unsettled times. Its ‘safe haven’ attributes attract wise investors.

Managing wealth
Gold has proved itself to be an effective way to manage wealth. For at least 200 years the price of gold has kept pace with inflation.

In 1999, Alan Greenspan, then Chairman of the Federal Reserve Board of the United States of America, said: "Gold still represents the ultimate form of payment in the world."

Effective performance
Another important reason to invest in gold is its consistent delivery within a portfolio of assets. Its performance tends to move independently of other investments and of key economic indicators. Even a small weighting of gold in an investment portfolio can help reduce overall risk.

Maintaining long term value
Market cycles come and go, but gold has maintained its long term value. Jastram (1977) demonstrated that in inflationary and deflationary times, in the very long term, gold kept its purchasing power.

The value of gold, in terms of real goods and services that it can buy, has remained remarkably stable. In contrast, the purchasing power of many currencies has generally declined.

This is why gold is often bought: to counter the effects of inflation and currency fluctuations. Harmston (1998) concluded that over the long term, in spite of price fluctuations:

- Gold has consistently reverted to its historic purchasing power parity
- Gold has proved to an effective preserver of wealth
- During periods of financial, economic and social turmoil, gold has been a safe refuge when the value of other assets was all but destroyed