eli5: Why is investing in Gold considered so secure?
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It’s kinda not imho, and I think the people who tell you so might be overblowing its stability, but really, almost every type of investment is not 100% secure so it’s still got advantages worth noting.
The idea behind **gold** is, it has value in itself. There’s always been market value for it, and now there’s also use and value for electronics and modern applications, so if USD or Euros suddenly tanked or inflated heavily, you’d still likely have a similar “value” of $2000-worth of gold purchased x years ago as opposed to $2000 that just took a massive hit to value.
Fiat currency has no value in itself, it’s only valuable because people expect it to be (USD, Euro, etc). Gold has value in itself, but is still subject to market stuff and supply/demand/policy. I mean, diamonds are also sometimes invested in, despite their value being largely artifical.
It’s “stable” because the element itself is rather stable. It won’t rust, decay, wear down, get broken, etc. 500g of gold then (if preserved or kept carefully) will be 500g of gold in 100 years. And it’s rare enough that people ascribe a high value to it. And it’s useful enough so it will retain value intrinsically (gold for electronics for example). It’s relatively easy to manage, melt, and form into other forms. But it’s plenty enough that people can (and have had) use it as a currency (vs other rare metals like platinum or titanium).
Two things: gold is as old as shit so people eventually came to a mutual agreement that its valuable and its tradable and its convertible, which is the most important aspect of it. Secondly, Its considered secure because material wise it doesnt eradicate as easy as other “things” and you can also carry it pretty easily. 200gr gold can help you sustain life anywhere on earth for quite a while if you were to smuggle it with you while fleeing. On the other hand, other investments such as real estate can literally blow up and disappear, currency can lose value, gems and diamonds and stuff are not really worth much due to minimal real world useful applications and are difficult to assess originality. Monetary markets, commodity markets etc are just markets where you actually trade worthless papers so i dont even count them… practically though, security is subjective and its not considered a great investment – it doesn’t increase in volume or quantity over time.
Gold can be used to make things like computers, jewelry, connectors, and many other stuff. That is why it will always have value, that makes it secure.
Money only has value because people assign value to it. But don’t let that fool you.
I can go to the store, give someone these seemingly worthless pieces of paper and out i walk with a brand new TV. That same store employee at some point gets to keep some of that money when they get payed. They too get to walk into a store, buy some groceries and come home with food. I don’t want to be luggin around 50 pounds of gold everyday just to buy stuff. So i value money, same as everyone else and that is why it works.
Now lets talk about some kind of “Gold” visa card… that would be interesting.
Back when money was first becoming a thing, currency was backed up by physical commodities like gold. Every unit of currency was guaranteed by an amount of a physical thing. The finite amount, rarity, or usefulness of the things made them valuable and this in turn gave the currency its worth. If you wanted more money, you needed more stuff of value to stick in a vault in exchange for it.
Nowadays we have fiat currency. Fiat currency can be created as required without the need for stuff to back it up. Not being pegged to anything tangible, it’s only worth precisely as much as we treat it as being worth – which is pretty much decided by the perceived strength of your economy. If your country/bank needs more money, they can print more, but this just makes every single bit of money worth a little bit less when it’s divided over the actual worth of the economy. This is inflation.
Meanwhile the same finite amount of gold is still sat in a vault. And unless humanity collectively decides overnighy that it’s overrated and is actually rather useless, it’ll still be just as valuable to us tomorrow. And if your currency is undergoing inflation and slowly losing its buying power over time, then you’ll need more and more of it to buy that same amount of gold as time goes on.
This is why gold is meant to be a safe bet. But of course it’s not perfectly safe because gold itself is only worth as much as we agree it is worth.
Gold is a physical thing and as long as you posses it, it holds some value.
A lot of that value is man made and as much a construct as the value of money, but below that gold has some actual worth as a soft shiny metal that can be easily worked in to all sorts of shapes and doesn’t corrode easily and conducts electricity and heat well.
Gold is also relatively rare and with a predictable amount of new gold produced each year by mining. Aluminium used to be rare and more precious than gold, until we figured out how to make it cheaply and easily. the same won’t go for gold. Short of somebody finding a new unexpected and large gold mine, a philosopher’s stone, easy atomic fusion, easy asteroid mining or a dragon’s hoard the amount of gold that will exist in the future remains limited and predictable.
Gold will fluctuate in value, but it won’t suddenly become nearly worthless unless something extreme happens.
Gold is not necessarily a good investment if you want to make more money, but in terms of not losing money it is very good. Perhaps not the best, but you are unlikely to lose it all if you buy gold.
Anyone trying to sell you gold online is likely a scammer.
Anyone who is trying to sell you gold promising you will get rich is a scammer.
Anyone hoarding gold to maintain his wealth in the case of a collapse of civilization is deluded.
Anyone advocating a return to the gold standard is probably not as much of an expert on economics as they think they are.
Buying gold from reputable source in physical form or as certificates from a trusted source as a hedge against losing everything in a crash is not the worst idea, but it isn’t genius either.
Investing in gold is considered smart because it backs up the currency.
The United States and many other countries do not have their currency backed up by gold, which means it’s paper money and is intrinsically worthless. Only the word of the Federal Bank gives the US dollar value.
Gold is used to hedge against the inflation of currency, which will inevitably go up due to inflation. Inflation is caused by the nature of stocks and bonds, which are encouraged to go up to make a profit, causing the cost of goods and services to go up.
Gold is not directly tied to stocks and bonds(although some mining companies have stocks and EFTs), so many people across the world use it. Traditional families in the old world use gold as part of dowry payments to be used in hard times, for example.
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