What is Gold Worth?

During the global recession gold became known as a "safe haven" from the volatility of the stock market. But since August 2011 the precious metal has almost halved in value

Ben Johnson 21 August, 2015 | 12:43PM

Gold is traditionally sought after as a store of value in times of severe economic dislocation, an insurance policy against financial Armageddon. Most notably, gold has in the past proven a useful hedge against inflation.

Its value as an inflation hedge and its low- to negative- correlations with most broad asset classes can make gold a worthwhile investment for a small portion of an investor’s portfolio. As for an investment in physical gold through an exchange traded product (ETP), we think that gold ETPs are easily some of the least costly and most liquid ways to achieve one’s gilded aspirations that exist.

How Can One Value Something That's Worth Nothing? 

Gold has no intrinsic value. The yellow metal does not produce earnings or cash flows that it can share with investors, like equities. Nor does it throw off fixed or floating coupon payments, as a bond does. Financial theory tells us that a security’s intrinsic worth is equivalent to the present value of the future cash flows it will generate. With no cash flows to project and discount back to today, at the end of the day gold is a purely speculative instrument: it is only worth what someone else is willing to pay for it.

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The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

About Author

Ben Johnson

Ben Johnson  is director of passive funds research at Morningstar.

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