Saving in Gold vs. Saving in Cash
Gold has long been recognised as a monetary savings asset. Most people are aware of a time when the world operated under the ‘gold standard’, a period where money itself and physical gold were essentially interchangeable at a fixed price.
Whilst the economy doesn’t operate based on a ‘gold standard’ anymore, gold is still used as money in many parts of the world, and indeed central banks continue to hold and buy vast quantities of the precious metal. Gold is also recognisable and tradable internationally, making it a de-facto foreign currency and monetary savings asset for investors the world over.
Over the medium to long term, those who have chosen to keep a portion of their savings in precious metals rather than keeping it all in a bank account have been rewarded. This is because gold’s capital appreciation has matched the income one would have earned keeping money in the bank, as the following table illustrates.
The gap between the return on cash and the return on gold has expanded significantly in the past few decades, owing to record low interest rates in Australia and around the world, and which look set to continue in the foreseeable future.
Note that the returns assume reinvestment of interest but exclude tax. Considering the tax advantages of gold’s returns befitting from the capital gains tax discount versus paying income tax on interest earned annually, the long-term net return differential between gold and cash would be larger.