There are a number of gold skeptics who believe that in today’s modern world gold has become irrelevant. They argue that technology allows for full transparency and instantaneous trading. They say that gold is an outdated currency. In fact, many of the same people who are giving up on gold are now banking on the digital currency called Bitcoin.
Safe Haven
It is easy to forget about the reasons why gold will always be valuable. Yet, you only have to look back a few years to realize that in troubled economic and political times, owning gold is extremely desirable and quite relevant. On September 6, 2011, gold hit an all-time high price of $1,923.70. Beginning in 2001 and running through 2012, gold went on a historical 11-year bull run. Since the closing price of $271.04 on the last day of trading in the year 2001, the end-of-year price of gold was higher than the preceding year’s closing price.
The extended secular bull market was a result of many factors. The stock market bubble burst. The horrific devastation of September 11, 2001, happened. War began in Iraq and Afghanistan, the housing crisis hit and the bank bailouts began. In such unstable times, people want a safe harbor for their money.
Central Banks
After having a horrible year back in 2013, gold has traded in a fairly narrow range over the last two years. Today, gold is somewhere around $1,200 and continues to trade in a narrow range. Investors have not become complacent about the precious metal, rather, they are just waiting to see when the Fed acts and starts to raise interest rates. If you doubt that anyone really wants to own gold, all you have to do is look at the central banks and the amount of gold they own. Central banks like Russia and China could fill their vaults with U.S. dollars or Swiss francs, but instead they choose to have a large portion of their reserves in gold.
Technology has moved forward in leaps and bounds making it easier for us to conduct trade and make payments with the swipe of a card or the push of a button. Gone are the days when you could pay for a horse or a fancy new suit with a gold coin or two, but gold has taken on another purpose. Gold became popular as an investment when the first Krugerrand was minted and has remained popular despite fluctuations in market price. Since Nixon decoupled the dollar from gold by taking the U.S. off the gold standard in the early 1970s, gold has generated more interest than ever as an investment.
Value of Gold
People have used gold for thousands of years to make jewelry. Gold rings are usually part of every marriage. Gold retains its value because there is always a demand for it amidst a tight supply. While speculators and traders can manipulate the price over the short-term, in time, gold will rise to a level that represents its real value.
As long as we live in such an uncertain world, there is great value in buying gold. With more paper money being printed every day, hyper-inflation is not too far away. Protect your purchasing power and guard against an uncertain future by investing in gold.