5000 Years of Monetary History
Gold has functioned as a store of wealth for over 5000 years. Physical gold is considered to be a true “safe haven” asset because it has no counter-party risk. Unlike currencies, bonds and other “paper” financial instruments, physical gold (in your possession) does not rely upon somone else’s promise to pay.
#1 Performing Asset Class of the Last Decade
The dot-com collapse of 2000 and the ensuing global credit collapse of 2008-2009 have helped position gold as the #1 performing asset class of the past decade. On average, compared to the U.S. Dollar, gold has increased over 17% for each of the past 11 years.
In response to the global credit collapse, central banks around the world have resorted to “quantitative easing” (money printing) as a means to shore up their respective currencies and economies. Trillions of dollars have been created in addition to loans, guarantees, bailouts and direct investments. As the velocity of these dollars increases, so does the threat of inflation.
Gold is often used as a hedge against inflation. Over the long term, gold has maintained its approximate purchasing power in terms of the real goods and services it can buy. Gold is often used for portfolio diversification to help protect against fluctuations in the value of other investment assets.
Gold is often used as a hedge against deflation. When confidence is lost in paper assets (currencies, stocks and bonds), gold is often seen as a flight to safety.
Historically, gold has been used as a hedge against volatility in the U.S. Dollar. As the dollar goes up in value, gold tends to decline. As the dollar declines, gold tends to increase in value.
Ultimately, gold is often seen as an insurance policy for uncertain economic times.