If You Don't Own Gold, You Know Neither History Nor Economics

Gold has very high volatility in the short term, while it tends to be very stable in the long term

By Infrarate on Unsplash

Gold has been for more than 2000 years an element that has served as a store of value. This has managed to coexist with many other subjects that have served as a means of payment, where animals, salt or even shells could be highlighted. What has made gold maintain its monetary role has been thanks to two physical characteristics that distinguish it from other commodities: first, gold is chemically so stable that it is almost impossible to destroy it; and secondly, it cannot be synthesized from other materials, and can only be extracted from its unrefined mineral, which is very rare on our planet.

‘I believe it would be both risk-reducing and return enhancing to consider adding gold to one’s portfolio’ — Ray Dalio

Why gold and not other commodities?

The main reason why gold has been the dominant commodity is because of its high stock to flow ratio. This means that the discrepancy between the annual production and the total supply of gold and, for example, silver, a…