Gold has created emotion in people since the beginning of time and has maintained the same effect till today. Unlike many other assets, gold is almost indestructible, easily transportable, and equally accepted around the world – giving gold a clearly unique status.
As a rule, people are most interested in the value of gold – its prospects and the question of whether the value of gold is permanent?
Gold is a popular precious metal that has been used for centuries as means of payment, as a hedge against devaluing assets, and in the manufacture of jewellery. In nature, gold occurs in small grains or lumps. Pure gold has a bright yellow colour, is soft, dense, shiny and can be easily formed.
However, the production demand for gold does not only come from the jewellery industry but is also used in many other industries, such as electronics, aerospace and medicine.
What guarantees the lasting value of gold?
Here is an example of how gold preserves value. Take, for example, a one-ounce gold coin – a gentleman was able to buy a suit and shoes a hundred years ago and take a lady to dinner. Even today, all this is possible for an ounce of gold! By comparison, we have the US dollar, which has lost more than ten times its value during this period.
Experienced gold experts often locate around 5-30% of their assets in physical gold to diversify risks and guarantee the preservation of their assets. Gold’s unique status as a safe haven is mainly due to three factors: economic, monetary and geostrategic.
The world economy is growing at an average rate of 3.4% per year. Although most forecasts point to somewhat slower average growth in the current century. This means that global economic growth, with an increase in the total output of monetary goods (goods, services and raw materials), will continue to outpace gross gold reserves. Gross gold reserves have been very stable for more than a hundred years – at 1.5-1.7% per year.
In other words, figuratively speaking, there is less and less gold in the world for every pair of jeans, a smartphone, a pair of earrings, etc., which makes gold more and more valuable.
Monetary policy reasons
We live in a debt-based financial system, where the absolute majority of the money circulating in the economy is not in the form of banknotes in a wallet, but as digital credit in bank accounts. The most important factor that makes the rise in the price of gold inevitable is the fact that the money supply is growing significantly faster than the amount of gold being mined.
This is an unavoidable rule of law and also the main reason why owners of physical gold do not have to worry about short-term fluctuations in the price of gold. In the long run, there are essentially no other financial asset class that cannot lose value in the long run.
The increasing pressure on money issued as credit is the root cause of all financial crises, and its awareness is forcing informed experts to purchase gold and thus secure their portfolios.
Money and financial instruments are exclusively virtual assets, the value of which in real terms derives from national and international monetary policy agreements and is subject to change over time. Therefore, gold is one of the few means of methods of payment/asset classes that can always be trusted. This is also the reason why gold is stored in national reserves as a security asset for the worst-case scenarios.
The demand for gold as a secure asset is growing, especially during periods of major shifts in global economic, military and political power relations. We are currently living in a period in which no one knows which currency of a country or association of countries will dominate the world in ten or thirty years. However, everyone knows that the only universal and secure currency that is guaranteed is gold.
It is worth remembering that gold is not the best way to get rich quickly. Although the price of gold may rise or fall in a year or two, gold can’t fall to zero. On the other hand, the possibility of gold price multiplying exists only in a situation where the value of all other financial assets – money, bank deposits, shares – collapses.
Over the decades, however, an increase in the price of gold is inevitable, as the preconditions for this are more favourable in terms of international economic, financial and geopolitical factors than at any time since the global financial system abandoned the gold standard in 1971. Evidence of stable growth in the price of gold over the medium to long term can also be seen in the price charts for the last 5, 10 and 20 years.