Gold has been used to make ornaments and jewellery for millennia. Prior to 2016, the oldest gold artifact thought to exist was a piece of jewellery from the copper age, found in a necropolis at Varna on the Bulgarian Black Sea in 1972. That was until a gold bead found in Southern Bulgaria was assessed by experts as being around 200 years older still, dating it from around 4500-4600 B.C.
The human love affair with gold is clearly not a new phenomenon. But aside from its aesthetic beauty and industrial uses, gold plays a large part in the financial systems of the world. Let’s take a look at how.
As gold is so rare, useful, and desirable, it has inherent value. Being durable, portable and divisible meant it was idea for use as a currency in the earliest financial systems. Pieces of gold were exchanged for goods and services going back more than 6000 years. Later this evolved into struck gold coins. With the advent of paper money, the United States of America tied their dollar to the value of gold. To achieve this, the maintained a ‘gold standard’ which was a huge stock of gold that correlated to every dollar in circulation. Paper notes therefore directly represented an amount of gold that the bearer was entitled to demand from the government upon surrender of the paper notes. Many countries followed this example, but today this system is no longer used.
Bullion is the name for quantities of gold which exist in the form of gold bars. In this state they do not provide any practical function, but they are easy to manufacture, handle and store. To be put to use they must be melted down and re-purposed. Companies, individuals and governments may choose to store gold bullion as it is less a volatile asset than the legal tender of any given currency.
WHY IS GOLD SEEN AS AN INVESTMENT?
While currencies are subjected to inflation year on year by the issuing governments, gold follows no such suit. 1 crore rupees in 1990 has the equivalent purchasing power of 7.35 crores in 2019 because of the devaluation of the rupee over time. Gold in fact follows an opposite trend, whereby the value has been seen to continuously rise over the years. For example 10 grams of 24 karat gold in 1990 could be bought for 3,200 rupees. The same 10 grams in 2019 would cost Rs.35,220. This is why gold is often seen as the wise choice for investment as it can offset the effects of inflation that cash in the bank is subjected to. If you are considering investing in gold in India 2020, it may well be a viable proposition for you.
THE DOWNSIDE OF INVESTING IN GOLD
Now that you are aware of the future benefits of investment in gold, you should also know about the negative points. Just as the companies, governments etc. who hold gold bullion have to deal with keeping it safe, this also applies to the individual. This can sometimes detract from the benefits of investing in physical gold. Individuals are unlikely to already possess an industrial grade safe, electronic security systems and security guards. Gold can be easily melted down and re-purposed, which means that if it is stolen it can very quickly become unidentifiable and is very difficult to recover. Many banks and security companies offer safe storage in safe lockers and vaults, but the rental of these lockers comes at a price.
India is at the top of world when it comes to gold jewellery. Rather than hide gold away as bullion, ladies would much rather make it into some beautiful jewellery that can be worn, displayed and admired. This desire to display the gold comes with its own risks. Not only is theft or loss a real threat when the gold is being paraded in public or even at home, but the likelihood of placing it in secure storage every day is less, which increases the danger. As fashions change and the jewellery changes hands from one person to another, they may express a desire to change the design or use the gold to make something new. Not only does the goldsmith charge for his time in manufacturing the new piece, but a certain amount of the gold is inevitably wasted each time it is melted down and made into something new. In the case of raw gold bullion being made into jewellery for the first time, additional metals are needed to be alloyed with the gold to make it strong enough to be used as jewellery. These additional metals themselves cost money at the same time reducing the purity of the gold itself.
Checking the purity of gold is not something that can easily be done by the investor himself. A trusted expert will need to check and confirm that the investor is actually receiving what he thinks he is purchasing, as there are many unscrupulous vendors who will try to pass off gold alloys as 24 karat, or exaggerate the percentage of gold contained in an alloy product such as jewellery.