You probably understand the value of gold.
Maybe you have a gold ring, gold necklace or even gold watch. And you know that in times of need, there’s always the option to sell your gold belongings (although you love them very much), and that puts you at ease.
If you relate to the above feeling, then you understand why some of your savings should be in gold: to sleep well at night. Knowing that you will always have something to sell in case times get tough can offer a huge sense of relief. This is a feeling that comes when buying gold.
And why is that the case? Why do we hold gold so closely to our hearts? Why has gold maintained its value throughout the centuries? To understand why, we need to go a little back in time.
The history of Gold
Gold was first smelted and used in ancient Egypt, around 3600 BC. Gold was most likely the first metal known to humans, and it seems it was cherished from the very first gold nugget.
Gold nuggets were found in several parts throughout the world by different groups of people at different times. Every culture was hugely impressed with gold, and they all manifested it in various forms, songs and dances. Thanks to gold’s malleability, impressive colours and strong structure, civilisations used it to decorate themselves, buildings, animals and anything they came across. It was widely associated with gods and royalties, which led to many countries going to war and sending slaves into mines digging for gold..
As the centuries went on, gold eventually became currency. It was smelted into gold coins, and was used to trade. It definitely made buying a lot easier (no need to trade your 1/8th of your cow anymore!). Gold was used as a currency in almost every country, and remained a highly regarded metal and commodity for centuries.
What happened in 1931?
The UK has had its own country since the 8th century, and was originally set on a silver standard. In 928 AD, one pound could buy you 15 cows! Then, in 1717, the UK switched from silver to the gold standard. It was set at £4.25 per fine ounce, and this lasted two hundred years. The gold standard meant that every shilling was linked to a specific amount of gold. This protected the currency against inflation and made sure it kept its value.
In the 19th century, the rest of the world (apart from China) adopted the gold standard as a way to keep financial systems stable.
Then, the First World War happened, which not only cost a huge amount of human lives but was also close to destroying the British financial system. Before 1914, the UK owned 40% of the world’s investments. By 1918, all that had disappeared and it now owed £850 million mostly to the United States (and it came with interest!). During the First World War the British government briefly removed itself from the gold standard, but then re-adopted it in 1925 to stabilise the currency.
Along came 1929 with the crash on Wall Street and the Great Depression, which was felt all around the world. The gold standard was flawed: it led to slow growth of the world economy and its lack of flexibility made it difficult for countries to raise money and adjust situations. By getting off the gold standard and implementing a “monetary policy” (the “fiat” money we use nowadays), countries could combat deflation as well as inflation, and keep the financial system more stable.
So in 1931, England got off the gold standard, leaving only France and the US with larger gold reserves. This meant that the Sterling pound was no longer based on gold, but based on a promise. A promise that the bank would give you your money, and a promise that the government would keep the value of the currency stable.
Here’s why we save in gold
An entire economy cannot rely on gold – that’s why the gold standard was removed. Now, with fiat currency, countries have the flexibility to adjust according to supply and demand, and this in turn can help stimulate the economy in times of recessions, and slow it down in times of prosperity.
As an individual, gold is still a valuable asset. After all those centuries, gold still maintains its value. Wherever you are in the world, you are bound to find someone who is willing to buy your gold. And when currencies lose a bit of purchasing power every year, gold helps you hedge against losses. Gold is here to stay, and when there is constant global uncertainty about our financial systems, having some savings in gold can go a long way to giving us peace of mind. It’s the healthiest, least risky form of wealth preservation, as well as the best strategy for survival in case of a financial collapse.
Gold is the most stable and safe store of value that exists. As we can see from its history, gold is a precious metal that will stay in our civilisation for a long time, and will always be a way to store value. As other currencies lose value over time, gold, in the long term, stays as a stable and low risk investment.