Gold has repeatedly become one of the most trusted and safe forms of investments. Many people use gold to help protect their portfolios against potentially dangerous and volatile market conditions. But why has gold remained so steady over the last 200 years? And why is it worth so much money?
How Much Gold is Out There?
There is less gold out there than most people would think. In fact, there is only about 160,000 tons of gold in the world today. There are only about 2600 tons of new gold mined each year, so the world’s gold supply only grows by about 1.6% each year. This means that gold is rare. There is only a certain amount known to exist and its rarity is what gives it its intrinsic value. Money’s supply on the other hand tends to grow by about 11% each year. Therefore, the stock of gold in the world is growing very slowly while the money supply grows much faster.
How is Gold Used Today?
Except for a few small things like electronics and gold teeth, gold is not really used for anything. 95% of the gold in the world is held as wealth storage. Gold is typically stored as gold bullion or in the form of gold coins and jewelry. It is a tangible form of wealth and has been used as such for thousands of years. Since gold’s supply in not expandable, it becomes a much more reliable store of purchasing power. Gold is both rare and stable.
Gold as a Wealth Builder
Over the last 400 years, the worth of gold has gone both up and down. When paper currency is worth the same amount as gold, people tend to hang on to gold and spend their paper money. As the economy and the governments that support it get into trouble, they begin to supply more paper currency, which reduces its value. When the paper currency’s value drops so low that it is not worth anything but the paper it is printed on, people go back to their gold. This is when gold prices and value begin to go up. In America, this was seen in the 1930s and again the 1970s. In the 1930s, the value of gold went up by 17 times in the five years after the prices had crashed. In the 1970s, its purchasing power went up 15 times. In today’s economy, which is turning out to be as unstable as it was in the 1930s and the 1970s, the purchasing power of gold has already tripled in value. This is how gold can be used to build wealth.
Gold as a Wealth Destroyer
Gold is not a 100% stable form of investment. In certain economic situations, gold’s value will go down. Even when the economy is tough, the time will eventually come when business begins to boom again. Smart gold investors know the difference between when to hoard their gold to hedge against economic turmoil and when to sell it for a profit. Selling goal during times when business improvement is on the rise will give the investor a chance to reinvest that money into the economy, its people and business. Gold is a great way to protect future capital.
Monex is one of the world’s most trusted sources for gold and other precious metals. Smart investors turn to Monex for market knowledge, helpful advice and secure gold purchases. For more than 40 years Monex has been helping investors reach their wealth manage goals through gold and other precious metals such as platinum, silver and palladium.
