According to the above criteria, gold meets all the necessary requirements, so we can say that yes, gold is a commodity. Like silver and other precious metals, it is a basic metallic element. As such, it is described as fungible, identical and fully interchangeable. Gold has been prized since ancient times for its beauty and permanence, making it an ideal asset to invest in.
When it comes to investing in gold, one of the best ways to do so is through a Gold IRA. To ensure you get the most out of your investment, it's important to find the best Gold IRA custodians. Most of the gold that is made today is used for the manufacture of jewelry. However, due to its superior electrical conductivity and its resistance to corrosion and other desirable combinations of physical and chemical properties, gold also emerged at the end of the 20th century as an essential industrial metal. Gold plays critical roles in computers, communications equipment, spaceships, jet aircraft engines, and many other products.
While gold is important for industry and the arts, it also maintains a unique status among all commodities as a long-term store of value. Until recently, it was considered essentially a monetary metal, and most of the ingots produced each year were destined for the vaults of government treasuries or central banks. When it comes to fungibility, yes, gold is a commodity. Any ounce of gold is interchangeable with any other ounce of gold (of the same purity).
But that's where the similarity between gold and other commodities ends. Before 1971, major commodities enjoyed periods in which their value in gold reflected inflation and increased, while the price of gold was tied to the U.S. dollar. To determine the optimal allocation to gold, it is useful not only to compare gold with other commodities, but also to consider the broader impact that gold can have on portfolios.
This is largely due to the significant dispersion in commodity performance, particularly since oil performs so poorly and other commodities such as gold perform so well, as evidenced by the overall commodity returns of -24% and -3%, compared to a return on gold of 25%. This ample liquidity allows investors to access gold in a variety of ways, which are particularly important compared to other commodities, and highlights how gold works in a differentiated market (Focus). After 1971, when the price of gold was able to float, the value of commodities in gold fell sharply. The World Gold Council also notes that gold allocations of 2 to 10% in a typical retirement portfolio have generated better risk-adjusted returns than those with broad commodity allocations.
