Economic History | Currency

Gold as wealth insurance

Why people use gold as wealth insurance


  The English writer Samuel Johnson (1709-1784) said: "Praise, like gold and diamonds, owes its value only to its scarcity". However, is it true that gold is merely a belief system, or does it have intrinsic, ever-potent value?

Intrinsic Value

   Gold has been admired by civilizations for many ages. The properties, aesthetics and surrounding mystery have recurringly appealed to people across time and space. This long validation-record supports the notion that gold will intrinsically never lose demand. It is this track-record of age-old demand that make gold a preferred method of wealth insurance. Traders such as Robert Kiyosaki apply this notion to their personal gold 'reserves'. It not only covers potential national financial collapse, but also insures people monetarily against threats to their personal agency. Robert Kiyosaki holds gold because, if all else failes, he can still rely on his gold to be valuable and liquid.

   Independent people are not the only ones who extend their financials with real bars of gold, but banks and even nations do it too. Circa 200.000 tonnes of gold have been mined across the world, and a lot of it resides motionless in bankvaults. Such large reserves reiterate that today's currencies are merely a representation of goods (and services).

   Every member of the financial system should probably acknowledge that the signifiers of money (bank statements, cash money) hold next to no value. The things which you can buy with money and the hope for future revenue are among the most notable assets that underpin your wealth measured in currency.

Finite supply

   With the 200k tonnes of gold having been mined, an estimated four fifth of the world's supply has found its way into human hands. There may be more gold to be found out in space, but its incrementally tougher accessibility means gold's supply may soon underwhelm its demand. What's more is that this finite earthly supply mirrors the infinite capacity to print money. This given as well as our learnings from history, are among the strongest reasons for esteemed traders to value gold so highly. Some don't even see gold as a pure investment, but also as a diversification of their 'currency portfolio' and, by extension, as a means of wealth insurance.

Faith & fear of missing out

   In crises and historic cases of hyper-inflation, we have noticed how volatile currency can be. A recurring issue in such cases, is that people lose their faith in the currency, and a snowball effect occurs. They rather place their trust in other goods and services, than in currency. That's exactly why gold is such a great means of wealth insurance; the good has a millenia-old tradition and predates all modern currencies on earth. Gold may be a mere belief system that bases itself on that tradition. Indeed, even if gold had no intrinsic appeal at all, gold could be a self-fulfilling prophecy in times of crisis; people know it as safe-haven and trust gold to remain desirable.

Theories on gold's origins

   Finally, to understand why gold is finite and scarce, one could watch this video by Astrophysicist Enrico Ramirez‑Ruiz.