Gold has been long used as a currency due to its scarcity, malleability, beauty, and overall uniqueness. Even though we use paper fiat money today, the price of gold continues to rise. Let's take a look at why this could be happening. Scarcity Unlike diamonds or metals, gold cannot be manufactured from other raw materials (unless you are an alchemist, if so, please e-mail me), and thus, is scarce. Gold is continued to be mined and production grows annually, however, many speculate that there is only 57,000 tons left to be mined. Currently estimates state that there is ~244,000 tons of gold on earth. And until we find our alchemist, this will always stay the case. Thus, it is a special material that we can all agree has inherent value in its rarity, scarcity, and un-manufacturability. Gold's Price The price of gold has been on a steady increase since we got off the gold standard in the 1971. However, many people, including Forbes author Nathan Lewisbelieve that gold continues to be the basis for a global monetary system in an underground form. I think we can assess the accuracy of this statement by observing its price since then. Gold still would not have earned you as much as the SNP500. In fact, the SNP500 would have earned you over 3x more from 1988 until today. However, the instability and unprofitably seen in the SNP500 from the 2000's Dot Com period to 2008 Financial Crisis era could have been mitigated by investing in gold. Investors seek gold in economic uncertainty and it can pay off to diversify your portfolio into gold to reduce risk if we do begin to see negative global economic indicators such as: GDP slowdowns, Interest Rate Increases, Stock Market Earnings and Dividends Decreases, and other macro economic indicators. Gold unfortunately istaxed significantlythus Roth IRA and funds are still preferable for life-time holds. But for the investor looking to add some color to his weekly, monthly, or annually rebalanced portfolio, gold can be a solid stable that holds its value with little risk. Gold's ValueGold itself as a raw material has some value. It is used in many electronics and spacecraft due to its conductivity characteristics. However, its value as a conductor is small as it can and often is substituted for lower grade metals with similar conductivity. Gold's real value lies in its historic uses as currency and its future possibility to become our primary global currency (and its likelihood of being our underground global currency). Today, you can take a flight to Europe with USD, get your USD converted or even sometimes, pay for things with USD. This ability is a benefit from our global currency markets. The system works very well for advanced countries with strong dollars. However, for weaker dollar countries, it often is very difficult for citizens to travel outside of their country due to the fiscal barriers to entry. Gold is a current solution to that problem as gold can be carried of the flight and exxchanged for whatever currency you'd like. The Gold WarCentral banks and countries warring for global power are very aware of the potential gold has in maintaining value is a Fiat Currency environment as well as becoming our next global currency. China, Japan, India, Switzerland and Russia have been making moves to increase gold reserves and are now the top owners globally. Additionally, central banks have decided to buy up gold after the US crash of 2008 and the identification that the US economy is built on a house of cards that will eventually fall. America used to be a major stakeholder until ~20 years of US National Debt took hold of our Equity and we lost ownership of anything on our balance sheet. All that America stands on today is the commitment to pay future debts off through the continuous work and production of the America citizens. However, this information is controversial. It is very difficult to find accurate statistics for gold holdings, and often they are stated as "foreign shares" or "forex reservers" meaning a country has loaned out its gold and is holding currency in exchange. Take Wikipediafor exmaple. It states the US as the largest holder of gold reserves in the world in "forex reserves". However, it also states This data is used by the World Gold Council to periodically rank and report the gold holdings of countries and official organizations. A quick jump over to the World Gold Council's website, and you will find the annual review report :India holds a strategically important position as the second largest consumer of gold and the holder of the largest stock of gold So which is it? Does America have the gold, or does India? It would make sense to me if India is the "largest consumer" of gold, that it likely has the most physical gold as well. What America has is likely 8,133 Tons of gold loaned out for some exchange rate. That exchange rate is not public, but I suspect the US may have some issues trying to get its loaned gold back for any reasonable exchange rate that it can afford. So it looks safe to assume that gold seems to be a global commodity of importance. So much so, that the country who used to hold a large majority of the gold 50 years ago, may have lost it to other countries over that time. We know that the amount of gold on earth has a finite limit, and we know it cannot and likely will not be predicable in the future. Oh and by the way it is beautiful. The perfect currency. And all of the central banks has noticed. So what has happened? The price has skyrocketed. Due to gold's inability to start a business or create future profits, it has not outperformed the SnP500, however, has been beneficial to hold if trying to avoid the impacts of inflation.
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