Precious metals, especially gold, are respected worldwide because of their rich history and value, which have been interconnected into different cultures for thousands of years. Coins made from this metal appeared more or less 800 B.C., and the first coins made of pure gold were struck 300 years later, during the reign of King Croesus of Lydia. Throughout human civilization, people have continued to hold this precious metal for different reasons.
New economies and societies have placed a lot of value on this metal, thus preserving its worth. It is precious metals that people fall back on when currencies like paper money don’t work. It means that it will always have a lot of value as a safety net against tough situations like economic recessions and financial depression. Listed below are practical reasons for owning gold in today’s world.
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History of holding its value
Unlike coins, paper currencies, and other assets, it has maintained its real value throughout the years. Individuals see it as a way to preserve or pass on their wealth from one person to another. Since ancient times, individuals have valued the distinctive properties of precious metals. This metal does not corrode, and it can be melted over the conventional flame.
This makes it easy to work with and made as a coin. Not only that, it has a special and unique color, unlike other precious metals. Its atoms are a lot heavier, and its electrons move faster, generating some light absorption. It is a process that took Albert Einstein’s theory of relativity to find out.
The weakness of the United States Dollar
Although the United States dollar is considered one of the world’s most valuable reserve currencies, when its value falls against other currencies as it did in the Great Recession, it usually prompts individuals to visit gold security, raising the price of this precious metal. Its price nearly tripled between 98 and 08, reaching more or less a thousand dollars an ounce in 08.
It nearly doubled between 2008 and 2012, hitting the $1,900 mark. The decline of the United States dollar happened for a couple of reasons, including the country’s enormous budget, trade deficits, as well as a huge increase in the supply of paper money.
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Inflation hedge
This precious metal has historically been a good safety net against any form of inflation since its price rises when the cost of living rises. Over the past years, investors have seen its price increase, and stock markets around the world plunge during the inflation years.
This is because when paper currencies lose their purchasing power because of inflation, this precious metal tends to be priced in paper currency units. Thus, its price goes up along with everything else. Not only that, but it is also seen as a good store of value, so individuals may be encouraged to purchase it when they believe that the local currency is starting to lose value.
A safety net for deflation
Experts define deflation as a period where prices go down, when the business activity goes down, and the country’s economy is troubled by tons of debt, which has not been seen internationally since the Great Depression of the 30s. Deflation was seen to a small degree during the 2008 recession in some parts of the world, especially the United States.
During the Great Depression, this precious metal’s purchasing power soared while prices of commodities dropped like dead flies. It is because individuals chose to stockpile paper money, and the safest place in the world to hold this paper money at that time was in gold bars and coins.
Increasing demand
In the past years, the increasing wealth of emerging economic markets has increased gold demand. In some countries, it is intertwined into their culture. Countries like India have a significant consumption of this metal. It has tons of uses there, like electronics and jewelry. As such, India’s wedding season in October is usually the time of the year where gold sees its highest demand internationally. In China, gold bullion is usually a form of savings. Its demand has been going up steadily.
The bottom line
Gold needs to be a crucial part of a diverse investment portfolio because the price of this metal goes up in relation to events that cause the value of investments like paper money, bonds, and stocks to go down. Although the prices of precious metals can be unpredictable in the short term, it has always kept its value in the long run. Through the years, gold has served as a safety net against the erosion of major currencies and inflation, thus making it an excellent investment.
