Five Reasons Gold is Valuable
Some of the smartest investors in the world hold gold in their portfolio. While Gold does not grab the attention of other assets such as crypto or meme stocks, it is still extremely valuable for a number of reasons. Here’s a look at the top five reasons why gold is so valuable as an investment.
1). Gold Has Finite Supply
First, gold has a finite supply. Compare that to fiat currencies such as the U.S. dollar which can have a theoretical infinite supply. In fact, 80% of all US dollars in circulation were created in the last 2 years. Contrast that with gold which has a total supply of just 131 million ounces. That’s just 0.015 ounces per every human on Earth. If the U.S. dollar were to collapse, the value of gold would skyrocket.
This also raises the question, how much gold comes onto the market each year. As you already know, gold needs to be mined out of the ground. As more gold is taken out of the ground, it becomes harder to acquire. In 2022, it is projected that the gold supply will increase by about 3%. This is pretty much inline with the average supply growth of gold.
2). It is Widely Accepted as Money
Just about anywhere you go in the world, gold is accepted as money. In fact, it has been that way for thousands of years. This makes gold extremely valuable to all types of cultures. For example, if you wanted to buy oil in the middle east, they may not take your home country’s currency if it is collapsing. However, they are almost guaranteed to take gold.
It is important to note that there are many ways that gold can be accepted. However, the most popular way to transact with gold is by using physical bullion. That includes gold coins and gold bars. Other forms of gold – such as ETFs and future contracts – could be less valuable in times of economic upheaval.
3). It has Held Its Value for Thousands of Years
Gold is one of the oldest forms of wealth on the planet. In that time it has held its value. As an example, you could purchase a fine toga in Ancient Rome for one ounce of gold. Today, you can purchase a fine suit for one ounce of gold which is currently valued at $1,900. The same comparison can be drawn when it comes to the purchase of crops, real estate and other assets.
Compare gold’s enduring value to just about every currency that has existed on the planet. In fact, the average lifespan of a fiat currency is only about 30 years. Currently, the oldest currency on the planet is the British Pound which is about 300 years old.
4). It is Used as Sovereign Wealth Holdings
The one thing that really gives gold its value is the fact that just about all countries have their own sovereign holding of gold. In fact, the United States currently holds about 4,500 metric tons of gold in its reserves. Gold is essentially used to back up a currency. In the past, currencies could actually be exchanged for gold. In the United States, this is no longer the case. However, the country still holds a huge amount of gold as a backup reserve.
5). It is Uncorrelated with Other Assets
For just about every investor, holding gold is a smart move because it is historically uncorrelated with other assets. For instance, when equities move down in price, gold will usually hold its value or go up in price. Because of this many investors as well as hedge funds will hold as least some of their wealth in gold.
In fact, it is recommended that individual investors hold anywhere from 5% to 15% of their assets in gold as a hedge.
Gold as a Valuable Asset
As you can see, gold can be extremely valuable for a number of reasons. Therefore, it is a good idea for all investors to consider diversifying into gold. It could be one of the most important investments that one can make in order to secure their financial future.