Gold was so valuable in the past that when banks failed in the early 1930's, Americans would hoard gold. Today, many people still view gold as a precious metal with monetary value; therefore, it's common to see investors include gold in many of their portfolios.
However, with the rise of digital currencies, will gold always be valuable?
Gold has always been valuable and will always be. Even though it no longer backs the US dollar (or any other currency), many people still appreciate gold for its monetary and non-monetary value. As a result, many experts recommend having at least 5 percent of gold in one's portfolio.
Let's explore more about gold to help us understand why it will continue to be relevant in the future. First, let's go back into the past to study the history of gold and its role before the Great Depression.
Let's jump in.
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The History of Gold
People and gold have a long history together — since ancient times. Back then, gold was so precious that anyone who had the most gold was the wealthiest. Then, in the 15th century, European explorers were sent out by their country's rulers to look for gold.
On January 24, 1848, James Marshall discovered gold in Sutter Creek, California. Many people knew the area had gold, but it was James who found the precious metal when he accidentally saw something shining at him.
The discovery of gold in California led to the arrival of 300,000 people from all around the US and the rest of the world. Thus, gold played an important role in American history because it helped to unify the nation.
Since gold already existed before the California gold rush, the new gold discovery caused gold prices to soar.
The Gold Standard
The first country to implement the bimetallic gold standard was the UK back in 1821. Other countries such as France, Germany, and the US also used the gold standard but a monometallic one.
After the gold rush in North America, gold became abundant, resulting in people trading gold in any quantity at a fixed price using paper money.
In 1913, the Federal Reserve was created by Congress to stabilize gold and the country's currency value. However, World War 1 changed all that, resulting in gold becoming scarce since there were restrictions on buying and selling gold worldwide.
In addition, World War 1 caused European countries to suspend the gold standard so that they could print enough money to support their warfare.
The gold standard came back into the light in 1928, but gold was no longer abundant around this time. So most countries had their gold exchange standard.
Countries would provide their central banks' gold reserves with currencies like the US dollar and British pounds, which can be converted into gold at a stable exchange rate.
The Collapse of the Gold Standard
Unfortunately for the gold standard, the system collapsed during the Great Depression of the 1930's, resulting in many countries abandoning the full system by 1937.
In addition, many countries realized that the gold standard gave them less flexibility in money supply because the supply for new gold could not cope with the world's growing economy.
Also, the gold standard made it impossible for a country to separate its economy from other countries' inflation or economic crisis.
Will Gold Always Be Valuable?
Gold will always be valuable because people all around the world still put a value on it. The only reason why gold may lose its value is if the public no longer wants it, but that isn't the case at all.
Gold is still being mined today, although not as aggressive as during the gold rush.
However, we should not forget that gold is finite, so someday it may run out. Experts say that it is likely that we have already reached a point where we have mined most of the gold we can find — we have mined 80% of it.
Many experts also believe that gold production will decrease in the next few decades.
That does not mean that gold will lose its value anytime soon. On the contrary, many countries still believe in gold, such as India, Japan, France, Germany, Italy, China, Russia, and Switzerland.
Currently, the US has the biggest gold reserve in the world.
The Rise of Gold
In August 2020, gold prices were record high, above $2,000 for the first time. However, the rise of gold prices doesn't always mean that there are more gold mining activities.
Mining became more difficult in 2020 as most of the sites around the world were forced to fully or partially shut down.
The COVID-19 crisis had led many investors in the US to move their cash into gold as more money was injected into the economy worldwide. From the investors' point of view, gold is a safer asset to have in uncertain times.
When banks were failing in the US in the early 1930s, many US citizens started to hoard gold.
Another factor that led to the move was the tensions between China and the US in recent years. The ongoing US-China trade war is hurting the US.
A study in 2019 found that the US economy was badly impacted by the trade war, resulting in hundreds of thousands of job losses and roughly 0.3% of real GDP.
Economic uncertainties have always led to many people finding ways to protect their wealth — holding on to gold is one of them. While there is no guarantee that gold will be around in the next 100 years (or even in 50 years), it is safe to say that gold will not lose its value anytime soon, considering how the precious metal has been used historically.
Like stocks, gold has its ups and downs, so many investors diversify their portfolios for managing their risks better, with gold making up at least 5% (and no more than 20%) of their portfolios.
Gold Is Recyclable
Although gold is a finite natural resource, it is recyclable. That means even if we run out of new gold to mine, people may continue to buy and sell gold using recycled gold.
Moreover, we get recyclable gold from gold used in disposable items, such as mobile phones, pens, tableware, etc.
When there's no more new gold to mine, it will become rare. Humans value rare items so much that people have been known to pay hundreds of thousands or millions of dollars for a single rare item.
Today's most expensive gold coin is the Canadian Giant Gold Elizabeth coin, made of 99.999% pure gold.
Gold vs. Stocks
Many economists believe that a person should include gold in their portfolios as long as it doesn't make up more than 20% of their portfolios. Gold did great in the 1970's, but stocks did not.
In the 1980s and 1990s, stocks did great, but gold suffered terribly.
During the 2008 crash, many people moved to gold. Looking at the performance pattern of gold and stocks, many people realized the power of diversification. So even if gold will not be as popular or important as other asset types in the future, it will likely still be around and valued.
Investors continue to believe in gold, because why not? For them, it has always been a safe-haven investment, so if things get rough, people will always want to keep gold, according to Michael Wittmeyer, the CEO of JM Bullion.
Even with the rise of digital currencies, gold will continue to be around.
Digital Currencies Will Not Replace Gold Anytime Soon
Despite many people believing in digital currencies (e.g., Bitcoin or Dogecoin) for the future, they are not likely to replace gold anytime soon.
However, it's not impossible for cryptocurrencies to replace our current monetary system in the future, either — JPMorgan Chase mentioned that the competition between Bitcoin and gold has already started.
Still, there's a lack of evidence to support the idea that Bitcoin or any other digital currencies will replace gold.
Sure, most youths today prefer crypto to gold, but that doesn't mean gold will lose its value shortly.
However, gold investors understand that gold will likely be around because the precious metal has long-term price stability and a long history in the finance world.
Besides, gold is appreciated for its monetary value and non-monetary value — like in jewelry production and electronics.
Related Article: What is a Bitcoin IRA?
Gold will always be valuable. People have valued gold for a long time, and the long history of gold and current trends suggest that the precious metal will not disappear anytime soon.
Therefore, for as long as people still believe in gold and are willing to trade with gold, gold will continue to hold its value, especially in uncertain times.
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I’m Donny. I’m a world traveler, investor, entrepreneur, and online marketing aficionado who has a big appetite to compete and disrupt big markets. I thrive on being able to create things that impact change, difficult challenges, and being able to add value in negative situations.