Eric Sepanek
SBC Founder
Eric Sepanek is the founder of Scottsdale Bullion & Coin, established in 2011. With extensive experience in the precious metals industry, he is dedicated to educating Americans on the wealth preservation power of gold and silver.
Investors are drawn to gold for a variety of compelling reasons, including its inherent value, relative scarcity, and range of available forms–all of which make for a worthwhile investment. However, not enough investors are asking: Is gold a liquid asset?
Liquidity, or the ease of converting an asset to cash at a fair market value, is a crucial factor to consider when making any investment. This is especially true when adding tangible assets to your portfolio, which are often more difficult to sell than paper assets.
Is gold a liquid asset?
Yes, gold is considered a liquid asset due to its widespread recognition, standardized pricing, high demand, and historical performance.
This means investors can generally sell their gold assets with relative ease, convenience, and speed while still getting a fair market price.
For millennia, gold has built a reputation as a reliable store of value, a means of exchange, and a hedge against market volatility. These characteristics, combined with deep participation from governments, institutional investors, and everyday individuals, make gold one of the most accessible and trade-able assets available.
“Investors use gold as a liquidity asset because it can be easily traded and valued and is widely accessible through different market access points.” – LBMA
Why Gold is a Liquid Asset
Daily Trading Volumes
Gold is the world’s second most heavily traded asset, with average daily trading volumes of around $233 billion across OTC, futures, and ETF markets. It trails only the S&P 500 and sees more than twice the trading activity of the Dow Jones Industrial Average. Gold even outpaces other popular assets, including US Treasury bonds and major currency pairs, such as the British pound and Japanese yen.
This highly active market means investors can generally trade gold quickly at competitive prices. What sets gold apart from other assets is its tendency to become more liquid during volatile market conditions. While trading in conventional assets often slows during downturns, gold activity typically increases as investors seek safe-haven assets.
Historical Performance & Proven Trust
For thousands of years, humans have used gold as a financial instrument and store of value. Gold’s historical performance has earned it a reputation as a stable store of value, especially when compared to more volatile assets like fiat currencies or stocks.
For comparison, the US dollar has lost 99% of its value against gold since the 1930s. This proven track record of value preservation boosts investor confidence in gold, leading to sustained demand and steady liquidity.
Widespread Recognition
Gold’s liquidity is bolstered by virtually universal recognition, resulting in a massive market of buyers ranging from governments to everyday retail investors. Since the 1800s, the vast majority of nations have underpinned their economies with gold.
Currently, 74% of central banks hold gold, with demand increasing consistently. This practice continued even after the abandonment of the gold standard, with most governments maintaining substantial gold reserves. This broad appeal is further illustrated with nearly half of US investors hold gold.
Large & Established Market
The gold market is considered well-established and trustworthy given its uniform structure, regulatory framework, and presence of reputable institutions. Most gold assets, such as bullion, bars, and coins, are produced by official government mints and trusted private mints, which adhere to standard sizes and fineness ratings.
In addition, regulatory bodies such as the London Bullion Market Association (LBMA) and the New York Mercantile Exchange (NYMEX) ensure that trading practices meet high standards of fairness, consistency, and transparency. Heightened efforts to uproot entrenched gold price manipulation further increase market stability and consumer confidence.
Universal Pricing Benchmark
A complex array of factors determines gold prices, but these influences are reflected in the spot price, an objective and universally agreed-upon pricing mechanism. This standard facilitates quicker and more efficient transactions by removing friction in price negotiation. With a standardized pricing system, it’s easier for buyers and sellers to agree on a reasonable cost.
This universal pricing benchmark also allows investors to gain an accurate assessment of the value of their assets, which is fundamental when making informed trading decisions. With a reliable method for determining value, buyers and sellers are more willing to enter negotiations, thus increasing the gold’s liquidity.
Physical Form
Unlike stocks, ETFs, or government bonds, gold is available in physical form. This tangibility adds an extra layer of confidence and reassurance, which makes it easier for investors to sell quickly. No barrier of digital ledgers, invisible intermediaries, or counterparty risk exists with physical gold assets as they do with traditional paper investments.
A wide range of investors are drawn to the tangible nature of gold investments, further lending to the metal’s liquidity. Investors looking to optimize financial privacy, security, anonymity, and control all view physical gold as a solution to their concerns.
Supply & Demand Dynamics
The combination of reliable supply constraints and diverse demand is another crucial factor contributing to gold’s liquidity. The cost and time demand of mining, geopolitical tensions, environmental restrictions, and the limited availability of gold on Earth limits the supply of physical gold. These dynamics of gold supply ensure only a small amount of the precious metal enters the market, increasing the total quantity at a slow and predictable rate.
This relatively finite supply is balanced by a diverse demand from various sectors, including central banks, investment, technology, and jewelry. The resulting tension results in steadier price stability compared to more volatile assets. In turn, this heightened stability increases the liquidity of gold assets.
Multiple Market Access Points
Gold is a liquid asset in part because of its availability across several trading venues, including:
- OTC Markets: Major financial institutions and central banks trade physical gold in over-the-counter (OTC) markets like London and Shanghai, which offer flexible pricing and deep liquidity, even for large-volume transactions.
- Futures Exchanges: Gold futures are standardized contracts traded on exchanges like COMEX that represent an agreement to buy or sell gold at a future date, offering high liquidity, fast execution, and efficient price discovery.
- Exchange-Traded Funds (ETFs): Gold ETFs like GLD and IAU give retail investors a simple, low-cost way to gain exposure to gold prices through regular stock exchanges, without needing to store or handle the physical metal.
This diversity of access points helps investors better match gold to their trading preferences, time horizons, skill level, and risk profiles. Plus, these venues are often available 24/7, giving investors considerable flexibility.
Tier 1 Asset Recognition
Following decades of playing an unofficial yet vital role in the global financial system, gold has been acknowledged as a Tier 1 collateral asset under Basel III guidelines. This official designation allows banks to treat gold similarly to the most stable assets, like cash and government bonds, when calculating capital and liquidity buffers.
The official adoption of gold into the global banking system has increased the yellow metal’s liquidity by expanding its use as collateral, deepening institutional demand, and strengthening its role as a trusted, trade-able reserve in times of market stress.
Grab Our Free Guide
If you’re eager to learn more about what makes gold a valuable asset, grab a FREE copy of our Precious Metals Investment Guide. It covers everything you need to know about the investment merits of precious metals, how they protect your wealth, and how to purchase these valuable assets.