Gold has been in use since times immemorial. From being used by ancient civilizations to decorate tombs and temples, to religious institutions being cast in gold – Gold stands head and shoulders above most precious items. Gold is a global entity that showcases royalty and power, yet what makes this yellow metal such a valuable asset? Why should you have a bit of gold in your portfolio?

When it comes to asset allocation, an ideal portfolio consists of shares, bonds, property, cash, and gold. Cash when hoarded in a bank, will pay you interest over time, while the first three mentioned assets are valued on the profits you will reap over a period of time. Gold doesn’t do anything, and is dependent on the demand for the metal. Why is gold so valuable then? Will gold hold its value if the going gets tough? Why not value some other element as highly as we regard gold? Let’s find out.

The Periodic Table – The Reason Why Gold is So Valuable

If you take a closer look at the periodic table, you will see that most elements cannot be used as a global entity to store value. Noble gases, halogens, and liquid elements were never going to make it as a global currency, nor were alkaline metals and earth metals. Radioactive elements, and rare-earth metals have their own sets of flaws, leaving us with transitional and post-transitional elements.

Apart from noble metals, the rest of the 41 metals comprising traditional and post-traditional elements do not fit the bill. Of the 8 noble metals, 6 of them are too rare, making them impossible to use as a global currency system. This leaves us with two elements – Gold and Silver. Both elements are chemically rare, but not too rare, and have relatively low melting points. Silver reacts with the minute amounts of Sulphur in the air and tarnishes.

Silver, at one point of time, was as valuable as Gold. The discovery of large silver mines, affected its ruling standard, and decreased its price. This leaves us with one element – Gold. Of the 118 elements in the periodic table, only gold can be used as a global currency standard.

Who has the most Gold in the world?

According to TradingBeast’s commodity trading guide, the most gold is owned by the The United States, accounting for 8,133 tonnes of the precious metal. That being said, China seems to be very secretive about the actual number of gold which it has in its possession. It is therefore, quite likely that China has even more gold than the USA. Whether that is actual true or not, is for now just a speculation as the government does not make any public statements on this topic.

Will Gold hold its Value if the Going gets Tough?

Gold, unlike the other assets mentioned in this article’s introduction is not reliant on another party for its value. Shares are great until the point of time a company goes bust, while bonds are perfectly okay unless the borrower forgoes paying you back. In the case of an economy crashing, cash is rendered useless. Land too, is a wonderful store of value, but it is taking the long-term into consideration, and is not portable.

Your ownership of a property is only as good as the legal system entailing its area, ensuring that your title as the owner of the piece of land is asserted. Gold on the other hand is not dictated by a third party - When an economy crashes, the value of gold goes up! Gold tends to do best when inflation rates are rising much faster than interest rates can keep up to. This indicates an economic problem - The central bank of the economy is loosening monetary policy.

Alternatively, inflation might be rising, and interest rates are rising at a much slower rate, or inflation might be falling, and interest rates are falling much faster. The former indicates a currency at a risk of debasement, while the latter suggests a damaging deflationary period. Gold does not have a counterparty association, hence it is most attractive to the world in an economic apocalypse.

In fact, many people regard gold as an apocalypse asset, as it tends to do well when the going looks tough. All being said and done, gold becomes more useful in an economic apocalypse, rather than it being rendered useless!