As the world economy continues to struggle, and all signs indicate that the recovery the “experts” say we’re in is on weak legs, it’s little wonder that investors are turning to gold as a safe and profitable investment.
Gold historically has been the commodity of choice for investors looking for a safe harbor in tough economic times and the current worldwide economic slowdown is no exception. As firms “to big to fail” are doing just that more and more investors
It’s called the “gold standard” for a reason
Gold has historically been associated with economic soundness and security. It was one of the world’s first currencies, being used by the very first cultures to develop a monetary system, and has played a role in world economics for two millennia.
Gold’s original draw was its scarcity, malleability, luster and its lack of corrosion or tarnish over time. The very first gold coins were believed to have been minted nearly 800 years before the Common Era.
Throughout the history of the ancient world, civilizations turned to gold as the basis of their coinage and monetary system. The Greeks, Carthaginians, and Romans all used gold coins because of their universal acceptance as a standard of money. Even civilizations far from the Mediterranean such as the Kingdom of the Parthians used gold for most transactions.
Even as the world eventually shifted to paper currency in the Middle Ages, gold retained its importance because gold was used as collateral to back the value of the bankers notes and other paper money. Silver also played a role in backing the paper money, but for most international transactions of large sums, gold was the backing commodity.
Gold in the modern world
As international finance became more sophisticated, nations moved to link their currencies to a fixed rate gold standard. Overall, the international gold standard (developed in the mid 19th century) was a stabilizing force in international markets, providing investors with assurances that their investments would be safe from the ebbs and flows of various nation’s currency value. In fact, the stability provided by gold is often credited for facilitating the economic development of the U.S., Australia and Canada.
After the chaos of World War I, various economic pressures and other factors led nations to move away from the gold standard. The Second World War and the Vietnam War helped further the break from the gold standard. The U.S. formally abandoned the Bretton Woods system, a system that combined the fixed rate gold standard with a free private market in the early 70s. The departure of the U.S. from the Bretton Woods system effectively killed this international system of monetary policy.
Today, gold retains a role in monetary policy as a reserve asset for central banks and is still used as a method of saving and payment in some parts of the world. Many digital currency systems are adopting gold as their basis.
Also, throughout the years, gold has been the safe harbor for investors when national and global economies hit the doldrums. Right now gold is in an upward trend as uncertainty remains about the global economy. Among commodities, gold is currently the best performing metal and its price rose by double digits in the second quarter of 2010.