Is gold a smart investment?
A Brief History of Gold
In order to fully understand the purpose of gold and investment history, one must look back at the start of the gold market. While gold’s history began in 3000 B.C, when the ancient Egyptians started forming jewelry, it wasn’t until 560 B.C. that gold started to act as a currency. At that time, merchants wanted to create a standardized and easily transferable form of money that would simplify trade. Because gold jewelry was already widely accepted and recognized throughout various corners of the earth, the creation of a gold coin stamped with a seal seemed to be the answer.
Following the advent of gold as money, gold’s importance continued to grow. History has examples of gold’s influence in various empires, like the Greek and Roman empires. Great Britain developed its own metals-based currency in 1066. The British pound (symbolizing a pound of sterling silver), shillings and pence were all based on the amount of gold (or silver) that it represented. Eventually, gold symbolized wealth throughout Europe, Asia, Africa and the Americas.
The United States government continued on with this gold tradition by establishing a bimetallic standard in 1792. The bimetallic standard simply stated that every monetary unit in the United States had to be backed by either gold or silver. For example, one U.S. dollar was the equivalent of 24.75 grains of gold. In other words, the coins that were used as money simply represented the gold (or silver) that was presently deposited at the bank.
But this gold standard did not last forever. During the 1900’s, there were several key events that eventually led to the transition of gold out of the monetary system. In 1913, the Federal Reserve was created and started issuing promissory notes (the present day version of our paper money) that guaranteed the notes could be redeemed in gold on demand. The Gold Reserve Act of 1934 gave the U.S. government title to all the gold coins in circulation and put an end to the minting of any new gold coins. In short, this act began establishing the idea that gold or gold coins were no longer necessary in serving as money. The United States abandoned the gold standard in 1971 when the U.S. currency ceased to be backed by gold.
Since going off the gold standard in 1933, and ending full convertibility in 1971, the gold price has been in a long-term uptrend. Clearly, the value of gold has grown once it was allowed to freely trade for investment.
Let’s peer further back in time to get a better perspective. Consider how gold’s purchasing power has endured throughout the centuries…
- During the time of Christ, an ounce of gold would buy a Roman citizen his toga (suit), a leather belt, and a pair of sandals. Today, one ounce will still buy a good suit, a leather belt, and a pair of shoes.
- In 400 BC, during the reign of King Nebuchadnezzar, scholars have discovered that an ounce of gold bought 350 loaves of bread. Today, an ounce still buys about 350 loaves ($1,100 divided by 350 = $3.15/loaf).
- In 1978, gold averaged $193/oz, and it took 290 ounces of gold to buy the median priced new home in the US. In 2014, gold averaged $1266/oz, and it took only 225 ounces of gold investment to buy the median priced new home in the US. The other 65 ounces would buy you an in ground pool and luxury automobile. Gold not only held its value, it boosted your purchasing power.
The alternative to using gold as money has been paper currencies. Government fiat currencies—those backed by nothing but trust in the issuing authority—are a relatively new invention. And none of them have lasted for long! Eventually, they have all failed.
The same is true for stocks investment and bonds. A stock certificate or bond issued a hundred years ago is all but certain to be worthless today. That’s not to say that stocks and bonds are bad investments. The point is that different assets have different purposes and different life spans.
Gold’s purpose is as a long-term store of value, and as insurance against crisis and inflation makes this a sure investment. History shows it has done just that…
Come in to luxamart today for the greatest value for your jewelry needs! We buy, sell and repair and clean diamond rings, gold, silver, platinum and coins to help with investment. We also sell and buy and repair luxury watches, Engagement rings, necklaces and much more. We are located in booming frisco, TX at Lebanon and Preston Rd.
4944 Preston Rd Suite #116
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