Why people hold gold

People have kept gold for thousands of years. The reasons still hold today, but so do the drawbacks, and a fair picture needs both.

Why people hold it

• It keeps value over long periods. Gold cannot be printed. Over decades it has tended to hold its buying power while paper currencies lost much of theirs.
• It is no one else's promise. A bank deposit relies on the bank, a bond on the borrower, a share on the company. Gold you hold yourself does not depend on anyone paying you back.
• It often holds up in a crisis. In 2008 and 2020, when shares fell sharply, gold held up better than most investments, although it dipped at first too.
• It protects against a falling currency. When a currency loses value quickly, the local price of gold usually rises. That is why gold is so popular in countries with high inflation.
• It is accepted everywhere. Gold can be sold in almost any country in the world.

The drawbacks

• It pays no income. No interest, no dividends, no rent. All of your return has to come from the price rising.
• It can fall for years. Gold reached about $850 an ounce in 1980 and did not get back to that price until 2008. After 2011 it fell about 45% in dollars and took until 2020 to recover.
• It costs money to buy, sell and keep. Dealers charge more than the spot price, and storage and insurance add up.
• It moves a lot. Gold can rise or fall several percent in a single day.

How people use it

Many people hold gold as one part of their savings rather than all of it, and think of it as insurance more than a way to get rich. How much, if any, makes sense depends on your own situation. This lesson explains the reasons; it is not advice about what you should do.

Here is how gold compared with savings in your currency over the last ten years: