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Finance Magnate: Why has Gold Been Important for Centuries?

March 25, 2021
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Article by Finance Magnates

King of metals, “Gold,” has shown a tremendous surge from $35 (1971 trading price) to $850 at the end of the decade. This price has surpassed all records by hitting an all-time high $2067.15 during the pandemic.

Why does gold still hold a unique position in financial market trading? Let’s find answers to these questions considering the gold’s entire journey from past till date.

How gold came into the limelight?

People across the world revere gold because of its rich history and intrinsic value. They have interwoven this metal into art and cultures for centuries. Initially, it was used as a medium of exchange, but slowly its use and importance surged.

For ages, people have continued to retain this precious metal for numerous reasons. Societies and now the financial market have provided value to gold.

Hence, preserving its worth. Moreover, it is a worthy and ultimate instrument that we can back upon when other types of currencies fail.

This means that it acts as insurance against challenging situations.

Why does every investor want gold in their trading portfolio?

The argument presented above that gold has lost its importance over a year is absolutely baseless. Most of the investors and traders today find it essential to hold this metal in their trading portfolio.

They further believe that there are numerous to justify this point.

Protection against deflation

Deflation occurs when business activity stalls, prices decline, and debt overburdens the economy. The most popular example of this is the Great Depression of the year 1930.

No, deflation occurred after this event. However, some parts of the world saw a small shadow after the financial crisis of 2008.

At the time of this deflation, the corresponding purchasing power of gold increased while the market saw a sharp drop in other prices. This was because people preferred to acquire cash, and there was no better option than holding this in gold or gold coins.

Hedge against inflation

Gold is an excellent instrument that hedges against inflation. Its price surges when the cost of living rises. In the past 60 years, many traders have seen stock trading plunge and gold prices sail at the time of high inflation.

Additionally, traders prefer to buy gold when they think that a domestic currency’s value is declining because gold is regarded as a “store of value”.

Savage at the time of weak dollar

There is an inverse relationship between one of the strongest reserve currencies, the U.S. dollar and precious metal gold.

Between 1998 and 2008, the value of greenbacks declined against other currencies, and at this time, the value of gold surged suddenly, and people holding it earned about triple profit.

The value reached $1,000-an-ounce in early 2008 and approximately doubled between 2008 and 2012, reaching around $1800-$1900.

The Best way to diversity trading portfolio

There is a famous adage that one should never keep all eggs in the same basket. The same applies to the global financial market.

Diversification of portfolio means .....

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