If you took all the gold in the world that has ever been mined and made it into a cube, it would weigh 170,000 metric tonnes and would fit into two Olympic-size swimming pools – its rarity is what makes the yellow metal precious.

Although the global supply of gold increases at less than 1.5% every year, no major goldmines have been found in many years. Indeed, gold production has fallen sharply in the US, Canada, Australia and, especially, in South Africa in recent years.

Meanwhile, global money supply or the supply of euro, pounds and dollars is increasing at more than 10% every single year.

In a world of near infinite paper and electronic currency creation, gold is again becoming important as a finite currency and as a monetary and safe-haven asset.

Why own gold?

Gold’s rarity is one of the reasons that it has acted as a safe haven throughout history.

The primary reason to own gold is as a diversification and as financial insurance.

Gold has a proven inverse correlation with stocks and bonds. Thus, when these paper assets fall in value, gold tends to rise as people sell paper assets and park money in gold in what is known as a “flight to safety”.

The old Wall Street rule of thumb was to always have 10% of your wealth in gold as financial insurance. You use it as a hedge and hope it does not work or surge in value as if gold rises in value, it generally means that the rest of your assets are falling in value.

Diversification is the key to investment success. It is prudent to spread your wealth into deposits, equities, bonds, property and gold.

Overallocating to any one asset can lead to poor investment outcomes as seen with regard to property and equities in recent years.

Many advisers recommend that some 10% of one’s wealth should be in physical gold.

The price of gold typically moves inversely to other asset classes, thus giving balance and protection in an uncertain economic world. Over the long run, gold has an excellent track record in maintaining its purchasing power relative to currencies and other assets.

Gold’s performance

Average annualised returns are of the order of 8.5% per annum since the end of the gold standard in 1971. Since the inception of the euro, gold has seen average annual gains of over 10%.

Gold rose sharply during the global financial crisis and in the years preceding the eurozone debt crisis. It rose from below €500/oz to nearly €1,400/oz, thereby protecting investors again from economic uncertainty. It then fell when those risks dissipated.

With gold at near €1,000/oz today, those who bought prior to 2007 have nearly doubled their money.

However, as the true warning goes, ‘‘past performance is no guarantee of future returns’’ and ‘‘investments can fall as well as rise’’.

Gold should not be bought in the expectation of large capital gains or as a get-rich-quick scheme; rather, it should be bought as financial insurance and as a diversification.

How to buy gold

Gold can be bought in bullion coin or bar format. Investment-grade gold bullion is gold which is over 90% pure, although most investors like owning gold that is 99.99% pure or 24 karat.

Bars come in 1 troy oz, 10 oz, 1kg (32.15oz) and 400oz formats for larger investors, institutions and central banks.

Gold is safest stored with trusted vaulting specialists, depositories and government mints.

Having legal ownership and title to physical gold is safer than paper gold or derivatives that have significant default risk.

Gold is attractive from a tax perspective due to the EU Gold Directive, which harmonised the treatment of gold throughout the EU and made gold VAT and tax-free. The only tax that gold attracts is capital gains tax.

Gold is highly liquid and can be sold over the phone or through the internet and funds are returned in days. Gold has been hovering around the €1,000/oz level ($1,300/oz) for much of this year.

Gold performed poorly in 2012 and 2013 since the dissipation of the global financial crisis. Indeed, gold had become overvalued, having risen for many years in a row. In true market style, it was due a correction and a period of consolidation. No market goes in a straight line up and most climb a “wall of worry” involving two steps forward and one step back.

Gold has had its one step back and looks attractive from a purely price point of view today. Gold’s price falls were due to the perception that the worst is over. We are concerned that it is not and gold remains an important diversification for those who wish to protect and grow their wealth in the coming months and years.

Gold remains the ultimate safe-haven asset and will protect from the considerable geopolitical and macroeconomic risks of today, including the risk of a US and global recession, terrorism and war in the Middle East or between NATO and a newly formidable Russia.

*GoldCore is an Irish company that was founded in 2003. As an international bullion dealer, Goldcore has over 4,000 clients in more than 40 countries and with over $200m in assets under management and storage.