From luxury cars, royal clothing, bank vaults, to even fine dining, gold has still maintained its presence as a symbol of status and prestige all around the world.
Isolating itself as a commodity and a universal currency, gold has made a significant imprint on the wide community of boomers and religious individuals. But every wise man is aware that religion slaughters all opinions (and sometimes facts), killing the very question that daunts countless beings of this generation- amidst all valuables, is gold still worth investing in?
Influence and Demand
Just like its presence, gold has also maintained its value over the years. Unlike other metals, gold is highly malleable; making it easy to mold into sheets. Malleability allows for jewelry work, making it easier to sell for higher prices. Similarly, any materialistic object has the potential to be sold at a higher price if conjoined or braided with gold.
Kings and dictators of the past decorated nearly everything with gold, symbolizing the prosperity and wealth of their empire. But just like today, gold was possessed and stored in major quantities by powerful entities. And they were the only ones who could and now, do control gold prices.
Surprisingly, nearly one-fourth of the gold supplies are owned by the Monetary Fund and the Federal Reserve alone. Gold bricks are packed there in containers, which are stored in vaults and require no maintenance whatsoever! In case you forgot your high school teacher’s valuable lessons, gold’s inability to rust, corrode and tarnish also makes it stand out from the competition.
But wait, doesn’t silver also possess the same properties? Unlike silver, gold fails to corrode amidst various elements, chalks, and baking soda. It has also proved to withstand environmental factors for longer periods of time. Moreover, its distinct yellow makes it look far different from the same silverish color of all other valuable metals.
The other chunk of demand comes from the tech manufacturers. Yes! Gold is present in every electronic device. Although present in a small amount, the demand from manufacturers still has a considerable impact on prices, due to the sheer amount of electronic devices produced each year.
Lastly, the most common demand comes from the public. Millions invest in gold each year, either as individuals, organizations, or even funds. But unfortunately, to considerably affect the price of gold (without selling jewelry and electronics), the trader in question has to exchange tons of gold at once, which is exactly why central banks are the greatest influencers of gold.
Since traders have little influence on gold prices, its value stands strong even amidst market fluctuations. Look back at both of the major crashes in history, and you’ll notice that gold is one of the few asset classes that retained most of its value. And believe it or not, other than being a popular status symbol, that is all that’s left of gold- a boring non-productive asset!
Before arguing your heart out, read the words uttered by Warren Buffet on CNBC, who withdrew his position when gold reached an all-time high in the year 2020:
“When we took over Berkshire, Berkshire was selling at 15 USD a share and gold was selling at 20 USD an ounce, and then gold is now 1600 and Berkshire’s 120,000. But you can take a broader example than that. If you buy an ounce of gold today, and you hold it a hundred years, you can go to it every day, and you can coo to it, you can caress, and you can fondle it and a hundred years from now you’ll have one ounce of gold, and it won’t have done anything for you in between. If you buy a hundred acres of farmland, it will produce for you. Every year, you can use that money to buy more farmland, you can do all sorts of things, but in a hundred years, it’ll produce things for you, and you still have a hundred acres of farmland after a hundred years.”
Basically, Buffet claims that a decent productive asset is ought to overperform or kill a non-productive asset over time.
But Gold is A Hedge Against Inflation
Alright, so gold is boring and stands no more than a status symbol in the investment world. If you’ve skimmed through this article with boiling blood and disagreement, I assume you only have one point to retaliate.
“Saving money won’t save you! Using gold as a hedge against inflation is effective, especially for many inexperienced investors.”
Like any other content writer, I have the liberty to pull out statistics from the past to show gold’s then annual return drops to as low as -10%. To go even further, I would also love to display the average annual return for gold, which according to S&P Global (September 23, 2021), sits at a pathetic -0.05%!
But numbers can only explain so much about gold’s performance. For those concerned about inflation chewing up their savings, it would be most wise to explore the equity market. And needless to say, if you have zero time and experience, the S&P 500 is always an option.
The bottom line, there is a broad range of assets to explore and choose from. Why stick with the boring ones?
If you wish to enhance your knowledge about commodities like gold from an economic point of view, I recommend reading ‘The Gold Standard: Retrospect and Prospect’.