Why is Gold Used as a Store of Wealth?

Posted on 24th March 2023

Gold has always been valuable. While there are those who would argue that modern currencies are the only form of money that can be accepted, there are others who maintain that gold’s value is something different.

While both sides make their points, one thing is clear: gold is here to stay as a form of investment. But what makes this metal so enduring? Why is it used as a store of wealth?

To find out more, read on. We look at gold’s significance and what that means for investors right now.

Why is gold important?

Work is underway at Scotland’s only gold mine. According to the latest from the extraction site, the aim is to be extracting about 2,000 ounces (57kg) of gold monthly, worth more than £3 million, by the end of 2023.

The work that’s going into the gold mine right now indicates the significance of gold and its value. Gold is rare, durable, and it’s been seen as a symbol of wealth for millennia, adorning the rich and powerful and used as a status symbol.

As well as being used as jewellery, it’s also been used as a form of protection. In the event of an economy collapsing, the metal can be exchanged as a form of currency. However, it’s worth bearing in mind that in the world of trading, gold is classed a commodity. This means it has a dual identity as it has both a commodity profile and monetary status.

What is a store of wealth?

So, what does this mean for investors? Knowing what a store of wealth – also referred to as a store of value – is a good starting point. This is an asset, currency, or commodity that retains its value over time. If its value is remains stable or increases but doesn’t depreciate over time, it’s seen to be a good store of wealth. As gold has endured for so long, it can be considered a safe bet when it comes to its store of wealth.

What makes gold a store of wealth?

There are several reasons why gold is used as a store of wealth:

Portfolio diversification

Gold doesn’t behave like other commodities and assets. When stocks and indices fall, gold behaves differently, maintaining its value even in the hardest times. It’s this that makes it an appealing option for investors looking to diversify their portfolio.

Portfolio protection Although it can be volatile, gold is seen as a ‘safe haven’ for many investors. This is largely because its less risky than other investments and there’s a chance of higher returns. It’s possible to make a gold price forecast that’s fairly accurate, based on what we know about the metal and how it performs.

Liquidity

Gold is a market that’s easily accessible. This means it can be bought and sold in a range of economic conditions.

Long-term returns

The UK may be in a period of high inflation right now, but this can mean that gold is performing well. The metal gains ground in good and bad times and does particularly well when inflation is high.

Will you look to make gold a store of wealth?