Gold and other precious metals have succeeded in remaining valuable assets for many centuries.
Many investors have depended on these assets as a security to hold their wealth if a crisis arises. Because they are not as vulnerable to volatility as modern-day investment assets like cryptocurrencies, they’ve managed to stand the test of time.
To better understand how gold has achieved this, we first need to know its history.
A Brief History of Gold
The history of gold dates as far back as 4000 BC, but the circumstances surrounding its discovery remains a myth. The National Mining Association stated that cultures in modern-day Eastern Europe used gold to create decorative objects.
Because of its shiny appearance, many people in the ancient world likened it to the sun and have seen it become a significant part of the religion and culture of early civilizations.
Even nowadays, many religious and cultural bodies still regard gold as a symbol of accomplishment, power, beauty, and purity. Besides being one of the most exquisite precious metals available, it is also one of the most valuable metals in the world.
Gold doesn’t rust or oxidize, and it is an excellent conductor of electricity. It is also highly malleable and workable into different shapes without breaking. Combining its malleability and conductivity properties, electronics companies roll gold into thin wires in modern electronic gadgets.
Because of its rarity and the value it carries, gold soon became an acceptable currency for buying and selling. Egypt made gold their official internal medium of exchange in 1500 BC since it benefited significantly from its gold-bearing area of Nubia.
Before the 19th Century ended, several other cultures had already adopted this precious metal as a medium of exchange afterward, setting its price per ounce with the Gold Standard.
During the great recoinage of 1696, the English Government attempted to fix the irregular coin shapes that caused a reduction in the value gold possesses. The process was a colossal failure and contributed to the adoption of paper money.
How Gold and Other Precious Metals Are Still Relevant Today
Since they are no longer valid legal tenders in the modern world, many investors use gold and other precious metals as a means of portfolio diversification. Here are few reasons why investors still invest in gold and other precious metals:
Gold and other precious metals have incredible appreciation potential in the long run. For instance, the value of gold has by over 600% in the past decades. Precious metals also have short-term profit potential for investors who prefer short-term investments.
Precious metals’ values appreciate in various ways:
Traded investment: Like every investment element such as bonds, stocks, mutual funds, and other commodities, gold has become an investment on its own. The value of each precious metal tends to increase or decrease in value like other investment commodities. However, the price fluctuations in these metals are much stable.
Global recessions: Precious metals often lose value during periods of global economic meltdown but gradually gain as the financial situation improves. Hence, most investors take advantage of the recession to invest in precious metals to make more profit as the economic crisis improves.
A significant difference between precious metals and other commodities during a global economic crisis is that precious metals lose value at a much lower rate.
Liquidity is the capacity to turn an asset into instant cash. Many valuable possessions such as cars or houses are not so liquid. For instance, it might take a few weeks or several months to sell a house or landed property.
That is not to say that real estate is not valuable, but the process of selling it is sometimes lengthy, stressful, and requires a significant amount of paperwork.
On the other hand, Precious metals have a high level of liquidity, meaning that you can easily exchange them for any fiat currency of your choice.
Aside from its electronics application, you’ll find gold and other precious metals like silver and copper in everyday products such as cars, batteries, ornaments, jewelry, silverware, and phones. They are also valuable for top manufacturing industries that produce solar panels and luxurious jewelry.
Fun Fact: Gold is instrumental in treating lagophthalmos, a medical condition in which a person cannot close their eyes. The medical specialist handling the procedure implants gold weights into the eyelids to allow the patient to blink normally again.
Increasing Global Demand and Supply
The increasing demand for gold and other precious metals has also contributed to how they’ve stood the test of time. We can also link this to its growing application in different fields.
Silver is another precious metal that has managed to remain relevant for decades.
The demand for gold and silver continues to increase more than other metals. The two metals are also safe and stable investment havens for business owners due to their stability.
Precious Metals Preserve Wealth
Another reason that precious metals have stood the test of time in the modern-day economy is because they have successfully preserved wealth and power for several generations. However, paper currencies are unable to live to this standard.
Let’s look at it this way. An ounce of gold sold for $35 in the early 1970s. An individual can either invest $35 in one ounce of gold or keep his $35. Of course, both of these currencies have equal purchasing power at that time, but if you compare their purchasing power today, you’ll realize that holding an ounce of gold is worth more than $35.
Investment Against Inflation
One of the significant reasons precious metals have stood the test of time is that they provide purchasing power protection against inflation. In other words, the value of gold and other precious metals usually rises during inflation.
Hence, many people take advantage of any imminent inflation and start investing in precious metals that have maintained value over the years. Because gold is valued in US dollars across the world, it benefits from a weakening US currency.
This relationship stems from two factors. First, to purchase gold, investors (such as central banks) must sell their US dollars. As a result, the US dollar falls in value as investors worldwide diversify away from the dollar.
The second reason is that gold becomes more affordable to investors holding foreign currencies when the dollar weakens. As a result, investors who own currencies that have risen in value against the US dollar will be more interested in buying gold.