Money: The Power of Gold

Have you ever wondered what is the value of Gold? If you look at the return of gold over the past 30 years, it is close to 0. In fact, there is no return for investing in gold - not like the money that you have saved in your bank or the stock that you have invested. Furthermore, gold investment is highly volatile and you may even lose money investing in it.

Then, what is so good about gold? If you want the answer, you can either read my previous posting on the value of money, or you can go to the library to read history books on ancient Egyptian empire, Roman empire, Ching dynasty, etc, etc, etc. Over the past few thousand years, armies had fought for land, gold and other things. This is because gold is scarce and it serves as a medium of exchange for goods. The usage of paper as a form of money started only around a few hundred years back. Whenever there is a new empire or country, there will be new paper money. And, when it happens, the old paper money loses its value. As for USD, we properly started to use that as a reserve currency about a few decades back.

Let's say you keep a lot of paper currency. What happens if the country goes bankrupt? The currency will be devalued immediately. There was this joke about a farmer carrying a cart of german currency to buy a loaf of bread during the 2nd World War (serious, during depression, a loaf of bread will cause you millions). Of course, he got robbed with this load of money. Guess what. The robber ran away with the cart but not the money. The German mark was worthless after they lost the war. A few years back, I saw an article about some people in South America using their currency as toilet paper because it is cheaper to do so. So much for paper - paper is cheap and you can plant trees if you need to print another ton of that currency.

So, you see, gold is never just about investment. It is about protection - you can call that risk management. Whenever there is a crisis (war, riot, hyperinflation, etc), money currency loses its value because people lose faith in the government. Today, the only effective reserve currency is USD and it has a short history. Its worth as a reserve currency has never been proven yet in human history and you know that there are trillion and trillion and trillion of it. What will happen if it loses its value? When paper currency loses its value, the money in the world will go elsewhere and it could be in the form of oil, metal, stock or real estate. And, one of proven medium of exchange is gold.



Disclaimer: The content in this blog contains purely my personal opinion and it is in no way a substitute for professional financial advice. You should seek advice from a professional financial advisor with any question regarding your financial matters.