Gold is quite simply a bright, slightly reddish yellow, and lustrous metal. It is extremely dense, soft, and malleable which makes it easy to work with to form coinage, jewellery, and electronic uses. Gold is also resistant to most acids which gives it a high resistance to corrosion, this is why pure gold can survive the test of time if/when exposed to the elements. Gold has been used for centuries, even dating back to ancient Egypt, as each civilization has placed a high value on the lustrous metal.
As of 2022, an approximate total of 208,874 tonnes of gold exist above ground. The world consumption of new gold produced is about 45% in jewellery, 48% in investments, and 6% in industry (electronics, medical, etc.). As computerized devices advance and become adopted by ever more people around the world, gold demand will undoubtedly increase. The same can be said for investments and jewellery as people tend to invest and buy jewellery items as they make money.
A Brief Comparison Between Gold and Diamonds
Both gold and diamonds are nearly indestructible in nature, so why is gold seen as more important economically?
There is one main reason that gold is more sought after in the investment industry and that is because it cannot be created. Diamonds can be created in special labs and it is very cost effective to do so, it can even be cheaper than mining a natural diamond. This fact gives diamonds an infinite supply and doesn’t allow for a proper commoditization to occur. This is because different labs create different quality of diamonds so it’s hard to put one price on all weights of diamonds. In comparison, gold is finite, and gold mined from any part of the world is worth the same price per ounce.
***Gold can be created from other elements but it requires substantial nuclear reactions to rearrange protons. It is currently nowhere near cost effective to create gold, it is much cheaper to mine.
Importance of Gold
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Gold can be used as a hedge against inflation because of its properties and finite supply. Investors typically buy large amounts of gold before (expecting) and when their country is experiencing high levels of inflation. This demand comes from gold’s inherent value and limited supply. Gold was worth $364 in November of 1950, $397 in November of 2000, and $1,805 in November of 2020.
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Gold is recognizable all over the world and can be sold almost everywhere.
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Multiple uses as jewellery, investment, and industrial.
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Corrosion and acid resistant. If you put an ounce of gold in your backyard and left it there for 5000 years, it would still be there in the same form (assuming it was not stolen).
Gold will continue to be used into the future and it will retain some sort of value; whether that value comes from jewellery, investment, industrial processes, or all of the above. As of right now, gold continues to act as a mild hedge against inflation and it has the potential to increase during times of excessive money printing (the year 2020).
It is important to note that a fundamentally strong gold stock may outperform pure gold over time. This is because it’s easier to inflate stock prices than it is to inflate the price of gold, it’s also easier to invest in stocks than it is to invest in pure gold. Therefore, stocks will likely outperform gold over time, however, as of July 30th, 2023, the S&P 500 is up 367.48% (not including dividends) over the last 20 years while gold is up 477.35%.
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