You may think why save in gold…
Although paper currency is considered a hard (or physical) asset, saving in any paper currency is not smart. Be it US dollar or Swiss franc. That is because currencies can be printed by central banks in any amount and at any time they feel it is necessary without thinking how much effort you’ve put in to earn them.
For example, a central bank in a given country estimates that to lessen the effect of inflation that a country is currently in, the amount of currency in circulation must be doubled. When a bank does so, the currency you have in your pocket or bank account correspondingly loses half of its value.
Read further to get familiar with reasons as to why gold is a wise choice to save in.
Wood (from which paper is made) is 50% carbon
1. Gold will never lose its value
Gold as a metal will never fail. Meaning, it will never become worthless carrying a price tag of zero.
At least gold did not fail in the past. Whereas all fiat currencies did.
That is because gold is extremely limited in supply and no matter how one badly wants, it cannot be printed with a printing press.
You can imagine the scarcity of gold if you consider the following. On planet Earth, for every 1 atom of gold, there are 50,000 atoms of carbon.
Fiat currencies are made of paper. Which, if you give it a general look, is carbon.
Carbon is the sixth most abundant element in the universe and fourth most abundant element on our planet. Hence, the amount of paper currency that can be printed virtually has no end!
2. Gold is a hedge against inflation
Basically, inflation is when the value of US dollar goes down. Because gold is priced in US dollars, when the dollar partly loses its value, the price of gold naturally goes up.
First of all, physical gold protects individuals from the risk of exchange rate of the dollar going up. In other words, from the risk of being caught getting with less euros (or pounds) for every single dollar you have. Second, not only that, even more euros and pounds can be acquired during a period of weakened US dollar than during a period when the dollar is at its normal state.
In fact, gold’s function as a hedge against inflation has been confirmed by a study done by Capie, Mills and Wood in 2005.
Weapon-grade plutonium
3. Gold is easy to carry around
Because of its scarcity, gold, weight-wise, is one of the most expensive materials used by humans today.
A quick estimate to give you a general idea. 1200 grams of gold is roughly $50,000 US dollars. Gold is heavy, so a 1200-gram piece will fit in a woman’s bag. It is like carrying a very good car with you every time you leave your house.
However, don’t fool yourself thinking that gold is the most expensive material out there. Some materials such as heroin and plutonium make gold’s price fade.
For example, heroin is 3 times more expensive than gold. While plutonium, used as the explosive ingredient in nuclear weapons, is 100 times more expensive.
However, although heroin and plutonium worth a lot and are in demand, they are not easy to carry around. Because, well, heroin is illegal narcotic and plutonium is highly radioactive. You don’t want to spend your life behind bars or get a mutation in your genes, right?
Girl from an African tribe wearing gold
4. Gold is accepted everywhere
Whatever place you go, Paris or a small tribe settlement in Africa, you can be certain that your gold will be taken seriously.
The reason for that is no matter where you go, gold is hard to get, easy to carry around, easy to process and relatively easy to test its authenticity. These qualities make gold a truly universal medium of exchange.
5. Gold is a private matter
You can acquire and own gold without anyone knowing it. Because when buying gold you should not be asked for a social insurance/security number, at the very least, banks and other regulatory institutions are not aware of your purchase directly.
Hopefully, now it is clearer why moving some of your earnings into gold is wise.
If you think you would like to try saving in gold, check the German company called Karatbars International, which I’m an affiliate of. Karatbars makes gold in handy 1 gram, 2.5 gram and 5 gram gold bars (24 karat).
To learn more about the company check Karatbars page.
Or open your free account today (no hidden charges) and start saving in gold (registration takes a few days).
Feel free to share your thoughts below.
Main references:
Capie, F., Mills T.C., Wood G. (2005). Gold as a hedge against the dollar. Journal of International Financial Markets, Institutions and Money, 15(4): 343-352
Baur, D.G., McDermott, T.K.J. (2010). Is Gold a Safe Haven? International Evidence. SSRN Electronic Journal, 34(8):1886-1898
www.goldsilver.com
www.investopedia.com
www.livescience.com
What a cool post! I always knew gold was valuable but I had no idea gold was so limited in supply. For some reason, I assumed there was plenty of it (like the diamond mines in Africa.) However, after doing my own research I found that experts estimate that there is only 154,244 tonnes of gold in the world (that is gold above the ground.) And these experts, are like you, recommending we should invest in gold because paper currency does not have the value that it once had.
Thank you for your feedback Amberlee!
Gold IS extremely limited in supply and that is the very reason it is priced so high.
By the way, diamonds are complicated in terms of value. Ever heard of someone investing in diamonds? I think that’s because they are difficult to process as diamonds are very hard. For example, to make a raw piece of diamond available in small equal-sized pieces complex equipment is required. Also, it is not easy to test whether a piece of diamond is real or not.
Very good page Margarita. I agree with you on all five of the reasons you outlined but in addition the global economy is in serious trouble. Currently the US dollar is the standard by which all world currency is based but it may not be that way much longer. The debt the United States is carrying is out of control another reason to stockpile gold.
Yes, you are correct Dave. The US dollar and thus the world monetary system is gradually disintegrating. This process has been further quickened by China’s introduction of gold-backed yuan in April of this year.