One of the major reasons for investing in bullion: Gold lasts forever.
Here are the economic and physical reasons why gold is a reliable savings and investment instrument:
1. Historical store of value
The first gold coins was issued by King Croesus of Lydia in the 6th century BC 1.
Graphic 1 Kings of Lydia. Time of Kroisos. Circa 561-546 BC.
We saw that in times of a gold standard consumer prices were very stable. That is because precious metals like gold and silver cannot be substituted or duplicated like paper money. Nick Szabo, the inventor of the concept ‘Bit gold’ in the late 90s, was very familiar with the track record of gold:
Precious metals and collectibles have an unforgeable scarcity due to the costliness of their creation. This once provided money the value of which was largely independent of any trusted third party. – Nick Szabo 2
2. Financial uncertainty
Usually the price of gold has had a negative correlation to stocks and other financial instruments. Especially in countries with a risk of high inflation there is a substantial need for assets that store value over years.
As you can see, the gold price went up every time when there was a major crash at the stock market.
3. Supply shortage
The extraction of resources is limited. In fact, the discovery of orebodies has declined in recent years despite record exploration expenditures. From the 1970s to the 1990s, at least 50 million ounces of gold have been discovered every decade. This has changed fundamentally. There are no more large gold finds. Due to the expected scarcity, precious metals are increasingly changing from pure inflation protection to profit makers.
Graphic 3 Vaultoro offers allocated gold bullion vaulted by Pro Aurum Switzerland.
- Hayek, F. A., von. (1990). Denationalization of Money (Third Edition). London: The Institute of Economic Affairs. Retrieved from http://nakamotoinstitute.org/static/docs/denationalisation.pdf ↩
- Szabo, N. (2008, December 27). Bit gold [Blog]. Retrieved 16 March 2018, from http://unenumerated.blogspot.de/2005/12/bit-gold.html ↩
- Porter, K. E., Amey, E. B., & George, M. W. (2014). Gold Statistics (Historical statistics for mineral and material commodities in the United States No. 140). U.S. Geological Survey. Retrieved from http://minerals.usgs.gov/minerals/pubs/historical-statistics/ ↩
- quandl.com. (2016). Dow Jones Industrial Average Index Level – yearly average (Central Bank of Brazil Statistical Database). Retrieved from https://www.quandl.com/data/BCB/UDJIAD1-Dow-Jones-Industrial-Average ↩
We hope this information has helped you in the quest to achieve financial freedom! Please let us know if you liked the article and what further topics we should write about.