The Power of Gold

Gold is such a special metal. It is recognized around the world because of its value. And almost everyone knows that it is expensive and valuable. Many people say gold is a treasure and even central banks know this too. 

In the chart below, you can see that central banks invest and keep gold. They keep it because gold is believed to keep the economy going when there is a crisis. 

I think we know from history that in the 1920s Germany experienced hyperinflation. This is an incident when money has no value. Even if you have $1000 you can’t buy anything with it because prices are too high. 

In this picture below, the stock pile of bills is equivalent to one US dollar. People can’t buy anything from their money so they just literally burn it. Even if they have hundreds and thousands of bills they can’t even buy bread.

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This is the main reason why the central banks are so “obsessed” with gold. The central banks of countries are investing in gold so that they can use it to stabilize the economy in times of trouble. 

Gold in and Currency

Gold is a safe haven for economies. It is used so that the value of the flat currency will still be afloat. In simpler terms, it is used so that people can still buy something with $1. It allows the value of the currency to still be “usable”. The spot price of gold is also often monitored by economic-policy makers to ensure that their monetary policy is on the right track. 

This chart shows that central banks buy gold more than they sell it or spend it. When the COVID-19 pandemic happened the central banks spent gold in order to prevent inflation. Central banks “release” and sell gold in order to keep the economy going. 

As you can see, the Fed of the United States holds the largest gold holdings. This is done because the US is afraid that the dollar’s value would drop. It would not want to lose its status as the universal currency. However the value of the dollar drops vs gold. 

In this chart we can see that the currencies of the world are losing their value vs gold. For example $1 today can buy you a loaf of bread, a burger, and a couple of drinks but a year from now it can only buy one loaf of bread. On the other hand, one ounce of gold can buy you more things as time goes on.

You may wonder where gold came from. Here is a chart of the top gold producers. The top five gold producers are China, Russia, Australia, the United States, and Canada. In 2019, China produced 383.2 tons of gold which accounts for 11 percent of the world’s gold.

There is so much incentive for companies to mine gold because it always has high demand. In economics, when the price of a commodity is high, producers would produce more of it because they would benefit from it. 

Here is a chart of the world’s total supply of gold. As you can see, the majority of the world’s gold is extracted. This is the “new” gold that came from mines. Recycled gold is also one source of the world’s supply of gold. This involves refining used gold and purifying it until it becomes a new 24 karat nugget.

Gold is always in demand wherever you go. This is because it also has many uses. The demand also comes from all sectors of the economy. And the central bank also wants a large chunk of the gold supply. 

Gold is considered a nonrenewable mineral resource which can be consumed over time. Because of this belief, the price of gold is still expected to increase over time. The concept of scarcity always makes things more expensive in the market. When the time comes  that the gold market hits a shortage in supply, the price of gold will surely hit the skies. 

The gold business sector is lucrative. The fashion and luxury jewelry industry is one of the largest markets of “commercial gold”. People buy gold jewelry mainly as an accessory but others buy it for investment purposes too. 

The tech industry also demands a significant amount of gold. As we all know, gold is a good conductor of heat and electricity. Gold wires are used in electronic devices in order for them to function. It is also used for making microparts of devices.

Gold is Power

Gold  is a symbol of power and wealth. Even countries know that more gold means more wealth. In the Democratic Republic of Congo, armed groups and high ranking military officials are allegedly involved in the gold trade. Illegal mining is present and dredges are present along the Awimi River. 

Source: Getty Images

Many people want to get involved in the gold business because it is highly profitable. Gold black markets also exist around the world. There would always be room for gold smuggling and illegal mining. This happens because gold is a powerful resource. 

Gold and oil are the two most powerful commodities in the world. Oil is often referred to as “black gold” with reference to its importance like gold. Although oil is more used and more consumed on a day to day basis, both have the power to dictate the world economy. 

The gold to oil ratio shows how many barrels of oil is needed to buy one ounce of gold. Due to the recent pandemic, the gold prices are now higher than it used to be. As you can see from the chart above, gold is now considered pricier than oil. This further proves that gold prices are higher in times of crisis; hence, increasing its investment value.

Gold is so powerful and since the start of time men always seek it. Throughout history we saw how gold remained to be the most powerful metal. It was resilient against crises and wars. It never lost its value and we will continue to see it thrive in the years to come.