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What to Know Before Buying Gold

13 March 2025

In Scrooge McDuck and Money, the film produced by Walt Disney in 1967, Uncle Scrooge explains to his grand-nephews that his huge vault full of gold, and much more, into which he often dives or swims happily, is merely 'petty cash that moves in and out each day'. Money, as he sees it, 'should never stagnate but like ocean currents circulate' to fuel the economy; if it idles, it becomes useless. In other words, owning gold does not, in itself, generate value, even when you have so much you could swim in it!

This idea was echoed by Warren Buffett, a legendary real-life investor. In his 2011 letter to shareholders, he stated: 'Gold ... has two significant shortcomings, being neither of much use nor procreative ... if you own one ounce of gold for an eternity, you will still own one ounce at its end'.

In general, investing means using money to obtain a source of income or more money in the future. Unlike stocks, which generate dividends, and bonds, which yield interest, gold does not produce income. Therefore, buying gold can be considered an investment only if the buyer intends to resell it at a higher price.

Gold and Other Commodities

Even those who invest in other commodities, such as oil or wheat, do so with the expectation of reselling them at a higher price. Gold, however, differs from other commodities because its value is not tied to industrial or agricultural supply and demand. The gold price mechanism is not the same as for oil and wheat because gold is not 'consumed'. The known gold reserves still to be mined are few, just over a quarter of the approximately 200,000 tons of gold already mined and available in the form of bars and jewellery. This means that the supply of gold does not influence its price, which depends almost exclusively on investor demand and, therefore, on the value they assign to it! In recent years, investors have assigned such a high value to gold that its price, after a more than 30 per cent increase in 2024, continued to rise in the first months of 2025, reaching a historic high of nearly $3,000 per ounce by the end of February.

Since ancient times, gold has been associated with power, prestige and wealth. Together with silver, gold was the basis for the creation of legal tender, defined as a metal disc whose weight is set and guaranteed by an authority through the design pressed into it. Today, gold is seen as a safe-haven asset, or at times even mistakenly regarded as a 'safe' investment, that is not affected by inflation or financial crises. However, the price of gold does not always rise during crises or periods of high inflation and, above all, it can decrease, even for long periods, as much as or more than the price of other financial assets. In several cases, it took years to bounce back. For instance, between October 2012 and December 2013, the price of gold in euros fell by over a third and only after nearly seven years did it return to the levels of 2012!

The value of gold is therefore volatile and subject to fluctuations. These fluctuations can be substantial and their causes often difficult to identify, even in hindsight. This is why you should always ask yourself whether investing in gold matches the level of loss risk you think you can bear. Most importantly, remember one of the golden rules of finance: diversification. If you decide to invest in gold, do so only as part of an investment portfolio that contains other assets, such as stocks, bonds, other commodities, or real estate.

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