A cosmic origin: gold from the depths of imploding stars
The phenomenon of physical gold extends far beyond the boundaries of our planet and finds its origins in the spectacular events of imploding stars, where the heavy elements of the universe are forged. This cosmic origin gives gold a unique aura of permanence and value that has been appreciated by people for thousands of years.
Stability of value in turbulent times
While gold as an asset class does not provide an ongoing income, its ability to retain value over long periods of time is undeniable. In times of economic turmoil and uncertainty, gold often serves as a safe haven, offering investors protection from the volatility of other assets. As a counterpart to the stock market, gold tends to move reciprocally, meaning that its performance is often inverse to share prices. Unlike individual shares, however, gold will never plummet and suddenly be worth nothing. This diversification function makes gold a valuable addition to any portfolio.
How secure is the traditional monetary system?
Another decisive advantage of physical gold is its security compared to fiat currencies. This term describes the fact that currencies today are no longer backed by real assets, such as gold in the past. In the past, the exact amount of gold contained in a dollar bill was written on it. Today it just says "in God we trust". Today, money is created out of nothing, so to speak, in the form of credit. The term fiat money is based on the divine saying "fiat lux", which means "let there be light" and "let there be money". The result is that the value of money is formed purely from confidence in its purchasing power and can basically change at will. The more the money supply is expanded, the more the value of existing money stocks falls.
The fact that all money enters the economic cycle as credit also has a remarkable side effect: as interest has to be paid on every loan, there is more debt than money in total. This means that in order for all debts, including interest, to be repaid, someone has to take out a new loan. This means that a constant increase in the money supply is inherent in the system. This can only be interrupted by insolvency, which in turn leads to the collateral, which is normally part of all larger loans, changing hands. The system can therefore also be seen as a large inflation and redistribution machine. Incidentally, this also explains why central banks always aim for positive inflation and never 0. Currency devaluations are also a popular way of reducing government debt.
In times of high inflation or currency devaluations, gold retains its purchasing power and can help protect investors' wealth. In particular, it is an emergency anchor should the fiat system collapse. Of course, this is not desired by most players and is therefore still considered unlikely at present. But the idea is not completely absurd, as the following thought experiment shows: most currencies today are directly or indirectly linked to the dollar. The dollar's stability of value is essentially due to the fact that oil is traded worldwide in dollars. This means that you can always get something of value for dollars that can be resold anywhere. We are currently seeing a global development in a multipolar direction. The BRICs countries in particular are beginning to stop trading oil in dollars. Should this model prevail, the dollar would lose a large part of its security.
Other developments that could have a massive impact on the traditional monetary system are the gradual (or rather galloping) abolition of cash and the possible rise of cryptocurrencies.
As long as a sufficiently large number of transactions in daily life are carried out with cash, the money supply cannot be changed at will. Cash can play a certain role in how quickly or effectively money supply changes can be implemented, as it is more difficult to track and control the amount of physical money in circulation compared to electronic money transactions. If there is only electronic money, the money supply can be changed freely. There would also be a risk of negative interest rates: In a cashless society, central banks could enforce negative interest rates more effectively, which could lead to controversy as it would mean that banks could charge their customers fees for holding money.
Another development with great disruptive potential is cryptocurrencies. They still seem to be held back by governments and institutions and viewed as dangerous competition to the established system. However, if there is a change of direction and a decision is made in favor of a governmental change, the traditional system could very quickly come to an end. This may still sound unrealistic, but there are already countries that accept Bitcoin as legal tender, such as El Salvador since 2021. And if the traditional monetary system is only electronic anyway, cryptocurrencies may offer significant advantages. This would be another scenario in which the traditional monetary system could become less important, which would speak in favor of gold.
For a detailed look at the topic of cryptocurrencies, we recommend the blog post
Multiple ways to own: ETFs, mining shares and physical gold
When it comes to holding physical gold, there are various options available to investors. Some prefer to access it through gold ETFs, which allow ownership of gold in the form of securities. Others invest in gold mining shares to benefit from potential price increases. Nevertheless, many investors opt for direct ownership of physical gold in the form of coins or bars.
Coins vs. bars: which form is the right one?
Coins offer several advantages over bars. They are often easier to trade and can be purchased in smaller units, making them more accessible to the average investor. In addition, coins often have a higher collector's value, which increases their attractiveness as an investment. In a world characterized by financial volatility, physical gold remains a shining anchor for those seeking stability and a store of value. Its timeless allure and undeniable merits make it an essential component of any balanced investment portfolio.
Translated with DeepL.com (free version)