The Value of the Gold Ounce

Gold has been highly valued throughout history, ever since the first historical record of it being mined approximately 6,000 years ago. Initially its value was due to its beauty and its malleability which allowed it to be shaped into many intricate designs. However, its rarity increased its value even more and soon people started using it as a currency.

Today, the gold ounce maintains its value as no other commodity and even though it is no longer used as currency, it still is considered to be a safe haven for investors, protecting their wealth. This is because, even in the worst situations such as war, gold maintains its value while paper currency and other derivative financial assets plummet.

For example, a gold ounce can be traded for food or transport or other necessities in a time of political and social instability when paper money has little to no value. Unlike gold, which has an intrinsic value, the value of currency is dictated by the economic health of a country as well as supply and demand. During political and social unrest, the economy crashes to the point where currency loses its value completely.

On the other hand, the gold ounce will always be tradable because no matter what economic changes might take place, it still maintains its qualities that give it its value. Gold is so valuable because, besides being one of the rarest metals on the planet, it is also practically indestructible. It is not affected by corrosion, whether due to temperature changes or oxygen and is only susceptible to cyanide which can dissolve it. Otherwise, gold can last for thousands of years which is why gold mined six millennia ago is still in existence today.

The Gold Ounce: Hedge vs Growth

While gold is an excellent investment for wealth protection, it is not considered a suitable growth investment. This is because gold tends to act in complete opposition to other financial assets, with the price per gold ounce increasing during a recession and dropping during a healthy economy. Therefore, investors prefer to sell off their gold investments during a healthy economy so that they may invest in financial assets that offer a higher return, only to buy gold when there is even a slight rumor of a possible economic downturn.

However, wise investors ensure that they have a diverse asset portfolio which also includes gold. No matter how savvy and aggressive you might be as an investor, it is still important that a fair portion of your asset portfolio is dedicated to low risk investments to hedge against inflation and protect your wealth while the rest of your portfolio goes towards higher risk investments for growth.

The advantage of investing in gold is that the price per gold ounce tends to rise at least equal to the rate of inflation. In other words if you invest $1,200 in a gold ounce today, no matter the rate of inflation, if you sell it in twenty years time your investment would have the same purchasing power as it does today. However, if you were to keep the $1,200 under your mattress or in a savings account with a rate that doesn’t meet the inflation rate then your money would be worth a lot less.

Irrespective of the fact that gold is not considered a suitable investment to increase wealth, it is still a vital component of any investment portfolio. Therefore, you should take a close look at your portfolio and you don’t have a single gold ounce then you should consider selling off some of your other investments to reinvest the money in a precious metal that will ensure you keep your wealth, no matter the economic and political climate.