Here we are going to see the main reasons why millions of people have wanted to buy this valuable metal throughout history. And why today it continues to be a very good option to consider.
If we look at history, the monetary value of this precious metal has been recognized for centuries, thus becoming one of the most coveted commodities.
Already in Ancient Egypt it was used in the manufacture of decorative objects. Even in medieval times it was attributed therapeutic properties and was used in medicinal techniques.
However, the main use that early civilizations gave it was as barter to exchange goods and services until it became official currency.
Many years later, the gold standard arrived, and with it, gold served as backing for many currencies in the world. However, in 1971 American president Richard Nixon officially put an end to this standard. Nixon realized that there were more dollars in the market than gold in his coffers to back them, due to the large amount of debt issued in dollars to finance his wars.
Even so, gold has continued to be a valuable and coveted metal, and you might wonder… Why do we value gold so much compared to other metals?
A unique precious metal
When we observe the famous periodic table composed of 118 elements, it’s overwhelming to think about the reasons why society has chosen gold as a medium of exchange over all the others.
If we look at the elements that make up this table, we can rule out many, since gaseous, liquid, colorless or radioactive elements are not attractive to serve as a medium of exchange or store of value, since they would not be easy to store, differentiate, or could even be harmful to health.
Therefore, among all the elements that don’t meet these conditions, the ones that would remain usable as candidates for currency or store of value would be the so-called transition metals such as copper, silver, lead, iron, or aluminum, to give some examples in addition to gold.
However, gold compared to these metals has characteristics that make it unique:
- It’s easy to melt for coinage
- It’s stable
- It’s portable
- It’s not toxic
- It’s very scarce and finite
- It resists oxidation over time, maintaining its golden color intact
All these qualities it has as a metal make us value this asset over other metals.
Whether due to its scarcity, its use in jewelry, being considered a safe haven asset, or having been part of international monetary systems for many years, we are dealing with a mineral of vital importance in the economy.
The price increase over the years
If we observe the price of gold from the beginning of the century, we can see a clear upward trend. In just 20 years, from 2003 to 2023, it multiplied its price by more than 5 times! If you had bought 3 ounces in 2003, they would have cost you around 1,000 dollars and in 2023 they would be worth more than 5,000 euros.
This is because it’s an asset with high demand, from a limited and scarce source. All these factors make gold appreciate in the long term. Therefore, and unlike investing in currencies, investors can trust it to increase their wealth over time.
Gold demand is increasing
Gold is used in the production of many products, ranging from jewelry to electronic products, such as in the manufacturing of the famous iPhone, where it’s a component of it.
These industries represent approximately 60% of global gold demand, which exceeds 3,000 metric tons on average in recent years. Additionally, it’s worth noting that another major gold demander is the various central banks and sovereign funds. Therefore, this assured demand will continue stabilizing gold prices and in periods of high demand, will drive gold prices upward.
Gold as a safe haven asset
You’ve surely heard that one of gold’s qualities is that it’s a safe haven asset. In fact, gold is the safe haven asset par excellence among investors. What does this mean? Well basically, that due to its properties, it’s a good vehicle to preserve value and maintain wealth over time.
And you might wonder, what are these properties? Well among others, we’re talking about a scarce, finite mineral, with complex extraction, very resistant to corrosion, useful, homogeneous and difficult to counterfeit.
Due to these qualities, this mineral behaves differently from traditional assets such as bonds and stocks. In times of great instability and uncertainty that usually lead to great volatility in the markets, gold, although it hasn’t been immune to this, has experienced less volatility than other assets.
Recent examples of great global instability where gold has shown good behavior, with increased demand and rising prices, could be at the beginning of the Covid-19 pandemic, the war between Russia and Ukraine, or the conflict between Palestine and Israel.
For all this, and to preserve capital, investors diversify part of their portfolio in gold.
Protection against inflation
As you surely know and have noticed, continued inflation over time produces a loss of purchasing power. In some economies, like Argentina’s, this phenomenon is a daily state issue.
In periods of high inflation, gold performs especially well in the long term. A study by the World Gold Council shows that since 1971 gold has obtained an average annual return of 15% when inflation has been above 3%. Since gold’s price is expressed in currencies like the Euro or Dollar, any decrease in these would increase gold’s price, making it a more stable investment than cash during inflationary periods.
Liquidity
Gold is a very liquid asset. Its trading volume is approximately 150 billion dollars each day. If you walk through any big city at some point you’ll surely come across a store that buys physical gold.
This liquidity makes its conversion to cash very easy and quick, providing security and confidence to any investor. Just 200 years ago gold was liquidity itself, since coins were made of gold and until 1971 coins were exchangeable for gold.
What to do if you want to invest in gold?
To invest in gold ETFs and funds you will have to do it through a broker. It’s an authorized intermediary to intermediate in financial markets. Without a broker, it’s not possible to buy or sell financial products.
To invest in gold you can do it for example through the following brokers:
| Broker | Platinum Instruments | Trading Conditions | Minimum Deposit | Broker Review |
|---|---|---|---|---|
HF Markets | -CFD on platinum spot | Spreads: From 6.6 pips Leverage: 1:100 | 5 USD | Review |
EXNess | -CFD on platinum spot | Spreads: From 20.6 pips Leverage: 1:100 | 10 USD | Review |
RoboForex | -CFD on platinum ETFs | Spreads: From 6.6 pips Leverage: 1:10 | 10 USD | Review |
ICMarkets | -CFD on platinum spot | Spreads: From 10 pips Leverage: 1:100 | $200 | Review |
XTB | -CFD on platinum spot -Platinum ETF | Spreads: From 10 pips Leverage: 1:100 | $100 | Review |
Tickmill | -CFD on platinum spot | Spreads: From 3 pips Leverage: 1:100 | $100 | Review |
FBS | -CFD on platinum spot | Spreads: From 4 pips Leverage: 1:100 | $5 | Review |
