Gold is a yellow precious metal. For thousands of years, people have used it as money and to store value. In the modern world, gold is still seen as a safe way to save money long-term, even though currencies are no longer linked to it.

Reasons Gold is a Good Store of Value

Gold is Rare

Gold is rare. All the gold ever mined in the history of the world would only fill about three Olympic-sized swimming pools. Scarcity makes gold a natural store of value. Only a little more gold is mined each year, about 1-2%. So, the supply only grows very slowly. Unlike paper currency, you can’t just print more of it. There’s only so much gold in the world. This protects gold’s value from inflation.

Gold Doesn’t Corrode

Gold doesn’t rust or corrode. The gold from thousands of years ago still looks the same today. Gold that the ancient Egyptians had would still be shiny and perfect now. Almost all other metals corrode over time when exposed to air or water. The fact that gold can last forever helps it keep its value.

Gold is Durable

Gold is very durable. It doesn’t break or wear down easily like other materials. You can melt it or beat it into different shapes, and it won’t break. Its durability is another reason it can be saved and used as money. A gold coin from centuries ago would still be perfectly fine.

Gold Has Been Valued for Thousands of Years

For most of human history, gold has been considered precious and valued in every significant civilization. The ancient Egyptians, Romans, Chinese, Aztecs, and others all independently valued gold highly. This long history of people seeing gold as precious gives it stability as a store of value.

Gold is Hard to Fake

Real gold is tricky to counterfeit or fake. This is because of its unique density and other properties. So you can have confidence in gold’s authenticity. This helps it function well as a consistent store of value over time. You don’t have to worry much about getting scammed with fake gold.

Gold as a Hedge Against Risks

Gold is a Hedge Against Inflation

When the general level of prices goes up in an economy over time, the value of the paper currency decreases. This is called inflation. But gold’s value tends to go up during times of inflation. In this way, gold protects savings. If you keep savings in gold, inflation is less likely to erode your wealth over decades.

Gold Does Well During Economic Uncertainty

Gold is seen as a haven during economic uncertainty or turmoil. When people worry about the economy, many investors invest money into gold. They see it as less risky than other assets. Throughout history, gold has increased during recessions, depressions, financial crises, geopolitical instability, etc.

Gold is Separate from the Financial System

Gold is no one’s liability. It is not dependent on any government or financial system. This independence helps make it a safe store of value. For example, if a country has economic struggles or its banking system has a crisis, the value of its currency may crash, but the value of gold will be protected. Gold can’t go bankrupt or default.

Gold is Portable

Gold is dense and portable for its value. A small amount of gold is easy to transport but can be worth a lot, making it a practical store of value you can take with you. In the past, if someone needed to leave their country due to war or a crisis quickly or to find a better life somewhere else, gold jewelry and coins were among the best ways to take their savings with them. Gold is still portable today.

Gold as a Diversifier

Gold Diversifies Investment Portfolios

Many experts say you should not put all your eggs in one basket or invest all your money in only one thing. Gold can be a good diversifier in an investment portfolio of different asset types like stocks and bonds. The price of gold doesn’t always move in the same direction as other assets. Historically, it has had a low correlation with stocks and bonds, which can help stabilize overall investment returns over time.

Central Banks Hold Gold

Central banks hold large amounts of their foreign exchange reserves in gold. They see it as an essential diversifier away from currencies like dollars or euros. For example, the U.S., Germany, Italy, and France each hold thousands of tons of gold reserves. This shows they see gold as an essential asset separate from one country or currency.

Gold’s Historical Importance as Money

Gold Was Used as Money for Centuries

For most of civilization, gold has been used directly as money in the form of gold coins. In the 19th century, most major countries adopted the “gold standard,” where the value of their currency was tied to a fixed amount of gold. This further established gold as the ultimate store of value and foundation for the whole monetary system.

Gold Was the Ultimate Foundation of the Monetary System

By defining currency in terms of gold, the monetary system had a stern anchor. The value of a dollar or pound could not be changed at will or manipulated by governments. The “soundness” of money was based on gold. When countries went off the gold standard, gold remained the ultimate form of money that couldn’t be debased.

Gold is Still Held as a Monetary Asset

While currencies are no longer linked to gold today, they still play an essential role in the global financial system. Central banks hold large gold reserves, investors buy gold as a safe haven, and gold remains a universal currency accepted everywhere.