Investing in gold can prove to be an interesting strategy for students wishing to diversify their portfolio and protect themselves against economic uncertainties. This article will guide you through the fundamentals of the gold market, the different investment methods available to students, and the keys to defining a strategy adapted to your profile. We explain how to optimize your investments in the precious metal while effectively managing risks.
Gold Market Fundamentals
Elements of influence of the price of gold
The price of gold is influenced by a multitude of economic and geopolitical factors that are essential to understand to invest effectively. Interest rates play a key role: when they are low, gold becomes more attractive because it does not generate a return, unlike bonds: « apart from interest rates, gold like any other financial asset is governed by the law of supply and demand. »
Inflation is another major determinant. In inflationary periods, investors turn to gold to protect their purchasing power. For example, if the annual inflation rate is 2%, a student who has €1000 in savings will see their purchasing power reduced to €980 after one year. By investing in gold, he can hope to compensate for this loss of value.
Finally, geopolitical events such as conflicts, trade tensions or crises can push investors towards the safe haven of gold. Take the example of the 2008 financial crisis: the price of gold rose from $700 to more than $1,000 per ounce in a few months, as investors sought to protect themselves from the collapse of the stock markets.
A safe haven
Gold is historically considered a safe haven, sought after in times of crisis. As expert traders often point out, « its ability to retain its value over long periods of time has earned it a reputation as a ‘safe haven’, sought after in times of economic uncertainty as well as in times of war. »
Indeed, when confidence in the financial system and traditional currencies erodes, investors turn to gold. It is seen as a global currency, allowing wealth to be preserved in the face of instability. “During crises, the yellow metal knows how to confirm its status as a safe haven”, thus reinforcing its appeal in troubled times.
Let’s imagine a student who wants to put money aside to finance a medium-term project, such as a master’s degree abroad. By investing part of his savings in gold, he can protect himself against the risk of depreciation of his local currency in the event of an economic or political crisis in his country.
Did you know that the price of a gram of gold increased from €8.80 on January 1, 2000 to almost €70 today?
An investment method adapted to your student profile
The advantages and disadvantages of physical gold
Investing in physical gold, in the form of coins or bars, has certain advantages for students. It provides tangible security and the satisfaction of owning a real asset. In addition, holding part of your portfolio in physical gold can be wise to protect yourself against financial crises.
However, physical gold also has significant disadvantages. Storage and insurance costs can quickly become significant, affecting the profitability of the investment. For example, renting a safe at a bank can cost several hundred euros per year. Furthermore, physical gold is less liquid than other forms of investment such as ETFs or mining stocks, which can make it more difficult to resell. Long-term investors are often willing to bear these constraints, but students must carefully weigh the pros and cons.
Accessible alternatives
For students wishing to gain exposure to gold without investing in the physical metal, there are interesting and accessible alternatives. Gold ETFs (Exchange Traded Funds) replicate the price of gold and are traded on the stock market like traditional stocks. They offer high liquidity and low management fees.
Another option is to invest in shares of gold mining companies. Their valuation is often correlated with the price of gold, with a leverage effect that can multiply gains (or losses) when the precious metal fluctuates. However, it is important to select companies carefully and follow their news. For example, a mining company like Barrick Gold saw its price rise from $15 to more than $40 between 2018 and 2020, outperforming the price of gold over the period.
Finally, derivative products such as futures, options and CFDs allow you to speculate up or down on gold. Very risky, they are reserved for students experienced in trading. In 2011, the price of an ounce of gold reached a record of nearly $2,000, before falling and stagnating since 2016 at around $1,200. A student mastering these tools could have generated substantial profits by betting on the gold price correction after this peak.
| Type of investment | Benefits | Disadvantages |
|---|---|---|
| Physical gold | – Tangible security – Crisis protection | – High storage and insurance costs – Low liquidity |
| Gold ETFs | – High liquidity – Reduced management fees | – No physical possession of gold |
| Mining Stocks | – Leverage on the price of gold – High return potential | – Specific risk linked to each company – Need to follow industry news |
| Derivative products | – Possibility of speculating on the rise and fall – Significant leverage | – Very high risk – Reserved for experienced investors |
By mastering these different investment methods, each student will be able to build the strategy adapted to their profile and objectives.
Short or long term strategy
Short-term analysis tools
Short-term gold trading requires mastery of technical analysis tools. Students interested in this approach will need to become familiar with Japanese candlestick charts, which allow you to visualize price variations and identify recurring patterns. The use of moving averages, exponential or simple, is also essential to spot trends and support/resistance levels.
Let’s take the example of a student wanting to get into gold day trading. Using a combination of 13- and 26-period moving averages, it can spot bullish (buy) or bearish (sell) crossovers to optimize its entry and exit points. The addition of the RSI (Relative Strength Index) indicator will allow it to confirm the strength of a trend or anticipate a reversal in the event of divergence.
Other indicators like MACD or Bollinger Bands will be of great help in confirming signals and optimizing entry and exit points. These indicators are based on the concepts of momentum and volatility, essential for short-term trading. Students will also have to master specialized tools such as the Ichimoku Kinko Hyo, widely used for the gold market.
Long-term fundamental analysis
Students favoring a long-term investment horizon will not be able to ignore fundamental analysis. This approach consists of studying in depth the economic, political and social factors that influence the gold market in the medium and long term.
To succeed in a long-term investment strategy, it is essential to master key concepts such as the mechanisms of inflation, the impact of central bank monetary policies, or even the hedging strategies of institutional investors. The decisions of central banks concerning their gold reserves and their key rates should be closely monitored, as should the major economic indicators (growth, unemployment, PMI indices, etc.)
A detailed analysis of the Gold Supply and Demand ratios will also be very informative, particularly by studying mining production, jewelry and industrial consumption, as well as investment flows in ETFs. The evolution of the US dollar should be monitored closely, as a weakness in the greenback is historically favorable to the rise in the ounce of gold.
Let’s imagine a student who wants to gradually build up gold savings over several years. By analyzing market fundamentals, such as the downward trend in mining production (-26% since 2011 according to source content) and the growing demand from central banks in emerging countries, it can anticipate a long-term structural increase in prices and adapt its investment strategy accordingly.
“The state of health of the dollar therefore has a strong impact on the price of the yellow metal.”
The risks of preserving your student capital
Stop-loss orders to protect yourself
Whether you trade short term or invest long term in gold, rigorous risk management is essential to protect your capital. The use of stop-loss orders is one of the basic techniques that you absolutely must master.
The principle is to set a price threshold from which the position will be automatically closed, in order to limit losses in the event of a market reversal. The level of the stop-loss will depend on the volatility of gold and individual risk aversion. A student could, for example, decide to “cut” his position if the price loses 5% compared to the purchase price.
Let’s take the case of a student who bought an ETF replicating the price of gold at €150. By placing a stop-loss order at €142.5 (-5%), he will limit his potential loss to €7.5 per share if the market were to fall. This technique allows him to sleep soundly, knowing that his capital is protected.
Please note, during severe market turbulence, the execution of stop-loss orders is not always guaranteed at the precise price set, due to a temporary lack of liquidity. It is therefore preferable not to set stops too close to the market price.
Portfolio diversification
Even if gold constitutes a safe haven, students will have every interest in diversifying their portfolio to reduce their overall risk. For example, it makes sense to combine positions in physical or “paper” gold, with other assets such as stocks, bonds or even real estate.
A portfolio too focused on gold would be very vulnerable in the event of a crash. However, even if the yellow metal is renowned for resisting crises well, history shows that its value can also fall sharply, as in the 1980s and 1990s.
Here again, the key is to measure your investments according to your risk aversion and your investment horizon. A student could, for example, devote between 5 and 15% of their portfolio to gold, favoring the most liquid supports such as ETFs or securities accounts.
For a student with €10,000 in savings, this means investing between €500 and €1,500 in gold, and dividing the balance between a euro fund, international stocks, bonds and precautionary savings. This diversification will allow it to smooth the performance of its portfolio and avoid too much dependence on the evolution of the gold price.
The demand for gold is driven to almost 50% by jewelry, consuming half of global production.
By following these recommendations, any student will be able to implement an effective gold investment strategy adapted to their profile. Whether for short-term speculation or to build up long-term savings, gold is an essential asset that deserves to be in the portfolio of any wise investor.
We have just discovered the fundamentals of the gold market, explored the different investment methods available to students, and defined the keys to a winning strategy in the short or long term. By mastering technical and fundamental analysis tools, while effectively managing risks, you can optimize your investments in this raw material and build solid capital for the future.
