Why Is Gold Valued as an Investment?

by Ray Dallas

Overview

Gold is valued as an investment because it is considered safe store of value. Gold has intrinsic value as a commodity, which gives investors confidence that it will never become worthless.
Holds Value

While the gold market can swing up and down, especially in the short term, over the long term gold holds its value because it is a scarce resource. Gold loses some value when a mining company discovers a sizable new deposit that temporarily increasing the world supply, which accounts for some of the short-term loss in value. However, even with new discoveries, the supply has never increased to such an extent to diminish gold's relative rarity.

Long-Term Growth

Since the early 20th century, the price of gold has increased steadily. This is especially true in recent years. According to goldprice.org, a source of information about the gold market, the average annual increase in value from 2004 to 2009 was 18.6 percent.
Hedge Against Fiat Currency

The price of gold often moves inversely to the value of major national currencies, like the U.S. dollar. This is largely reflects the tendency of investors to move funds around as they look for a reliable source of growth. Because gold tends to hold its value over the long run, some people turn to gold when they are afraid that their currency is losing value due to factors like inflation. This increase in demand pushes up the price of gold.
A Bastion in Uncertain Times

The price of gold tends to increase sharply during troubled economic times, when many investors seek safe alternatives to stocks, bonds and currencies. This is evidenced by the fact that, according to goldprice.org, gold in 2009 exceeded $1,000 an ounce for the first time, reaching prices of more than $1,200 an ounce.
Liquidity

While gold is not as easily traded as paper currency, it is easy to convert into cash, and not just on the stock market. Holders of physical gold can sell it to private buyers and jewelers. There are many businesses that advertise "cash for gold." "Gold parties," in which people get together to buy and sell gold jewelry, have become popular in the United States.