It’s an excellent electricity conductor and it’ll neither tarnish nor oxidize; the metal is also the most ductile and malleable in the entire periodic table. Gold is so malleable you can pound it into a sheet so thin that light can pass through it.
Gold has many industrial uses; it’s also the metal of choice for medical and technological industries. Its use as jewelry throughout history is well-documented. Since the metal is found all over the world, almost all ancient civilizations used the metal as both jewelry and currency.
Gold coins bearing the likeness of the Lydian King Croesus were found in Turkey and were dated to be around 600 BCE. Lydia was a kingdom in what is now Turkey and is known for being the first to mint gold coins.
Why Invest In Gold?
Currencies around the world used to be backed by gold. But, although countries have since abandoned the gold standard, the metal is still viewed as a safe haven asset—that is, an asset that retains its value even during turbulent times. Societies have always placed value on gold, and in the process, preserving its worth.
Owning it is seen by many as insurance against uncertain times. Many investment groups like the Oxford Gold Group, recommend gold for retirees as a safe investment for their nest egg.
Throughout history, people have always continued to hold the metal for several reasons. And people’s attitude toward gold hasn’t changed. It’s because there are many benefits to investing in gold. Below is a list of these benefits.
- Gold Maintains Its Value
Gold through the ages has remained valuable, unlike coins and paper currencies, or other assets that tend to be mutable and whose worth degrades over time. People also use gold as their legacy, as something to be passed on to the next generation. Although gold today isn’t used as currency, its function as money is much better than any fiat currency. Gold after all has been used as a medium of exchange longer than any currency that exists today.
It has been a store of value for about three millennia. In comparison, the British Pound Sterling, one of history’s longest currencies still in use, is around 1,200 years old. Gold has also been used in the US as a medium of exchange.
Gold performs better compared to any currency as a store of value. Gold’s purchasing power, compared to all the major currencies in the world, hasn’t degraded that much. While currencies around the world have fluctuated wildly and got steadily eroded by inflation, gold’s value remains as solid as the Rock of Gibraltar.
However, gold’s value, as a commodity, is also subject to market forces and can fluctuate. But the metal’s value always bounces back.
- Hedge Against Inflation
Historically, gold has always been used by investors as a hedge against inflation; gold’s value tends to rise as the cost of living increases. Stock markets may go on a tailspin during periods of high inflation, but the price of gold remains stable. People tend to invest in gold whenever their local currency loses value. With gold’s rock-solid store of value, they’d be remiss if they don’t put their money on gold during such times. You can read more here.
- Protection Against Deflation
A period when prices drop, when the economy is buried under tons of debt, and business slows to a crawl, is said to be a period of deflation. Deflation has occurred during the Great Depression of the 1930s, as well as in the aftermath of the 2008 financial crisis, although not on the 1930s scale.
While the world was in the depths of the Great Depression, gold’s purchasing power increased as other prices crashed precipitously. And the main reason for this was that people hoarded cash. They put their money in the safest way they can think of—buying gold and gold coins.
- Steady Even During Crisis
Gold isn’t only the go-to commodity in times of financial crisis, it’s also the preferred method for people to safely park their money during times of geopolitical crisis. When global tensions rise, gold is the safe-haven asset, so much so that the metal is referred to as the crisis commodity. Often, it’s when geopolitical tensions are high that gold prices spike. When confidence in governments is low, people turn to gold. It’s tangible and can give financial protection.
- Supply Limitations
Since the 90s, the majority of gold supply in the market came from gold bullion sales from the central banks around the world. However, the sale of gold by central banks slowed down in 2008. Meanwhile, gold from gold mines had been in decline since 2000. Figures from BullionVault.com show that gold production in 2007 totaled 2,444 metric tons, which was a decline from the 2,573 metric tons produced in 2000.
New mines can take about five to ten years to get started—this means that the gold market isn’t in any danger of being flooded with new gold bullions. For investors, a limited supply of a certain commodity means prices will continue to rise. The law of supply and demand is an immutable force.
- Portfolio Diversification
As portfolio insurance, gold is an excellent choice. Most money managers will advise you to set aside a percentage of your investments for gold; having all your money invested in gold is unwise, but you can also say that about others, like bonds, stock, real estate, etc. What you should do is spread your capital carefully and diligently in various commodities as protection.
It’s tempting to go all-in on one winner, but it’s still an unpredictable world out there. One mistake could spell disaster for your capital. To avoid getting caught in mistakes like this in times of uncertainties, gold can serve as an anchor for your portfolio. After all, diversification is an essential rule in investing.
Gold should be a part of your strategy to protect your investment from unpredictable events. Gold will always be a valuable commodity and is unlikely to lose value because the metal is inherently valuable. Stocks and bonds may decline, but historically, during such a recession, gold’s price remains solid. Gold should be included in every investment portfolio.