Gold Lasts Forever

In ancient times, whether used for personal or residential adornment, in the form of jewelry, household items or interior decoration, gold was perceived as a means of storing or displaying wealth. Although gold coins were issued as early as 2 700 B.C. in Egypt, they weren't meant for trade but just as valuable presents. Actually, the first gold coins to be used for commerce were the ones issued by King Croesus much later, around 550 B.C. If we are still using the phrase 'rich as King Croesus' today, this just shows the lasting value of gold.

Even if at that time gold meant currency, that is, a means of exchange, the coins were made of pure gold; therefore, there was no possibility of inflation. But when rulers found out they could have more money by mixing gold with some lead, early inflation was already there, affecting the value of the impure coins. The best illustration of the lasting value of gold is that the countries that chose to add to gold some other inferior metals lost soon enough both wealth and status. Spain, for instance, was among the most powerful states in the world while employing its well-known 'pieces of eight', but to the extent it blended its currency with lower metals to that extent lost its power and fame.

The same process could be witnessed later in the US during the civil wars, when greenbacks were used, a fact that led to sky-high inflation. But as soon as these became convertible into gold by government's fiat, inflation started to decrease. Why do you think that most states decided to switch to the gold standard by 1914? Because, in spite of the wars bringing sweeping changes and uncontrollable inflation, gold's value was perceived as enduring, in short unchangeable.

While, arguably, it is impossible to give up a three thousand-year old tradition according to which gold is the best means of preserving wealth, and so gold is still reigning, its status nowadays is not the simple result of tradition. Whereas Indian households could well amass gold jewelry for such reason, the substantial investments in gold these days are pointing to other reasons for buying gold. Economists have proven that, in spite of either inflation or deflation, gold has succeeded in preserving its buying power over time better than any currency. As such, investors choose to diversify their portfolios by buying gold, which has a stable value. Everyone hates instability and is looking for assets that last.

While selling it from time to time makes sense because you can take some profit, given that its price is constantly increasing, always keeping some for protection makes even more. Unlike in the case of other assets, its value is not transient or dependent on human will.