Gold: An asset that ‘cannot be hacked, erased or degraded’
Adam Orlando

Gold is one of the oldest assets in existence and one that “cannot be hacked, erased or degraded”. While its price keeps breaking records, few may know that its precious metal cousin silver has been mined more throughout history – by tenfold.

Some 154,000 tonnes of gold have been mined since records were kept, compared to 1.5 million tonnes of silver.

According to Our World in Data, in the year 1681 only 6 tonnes of gold was mined – in 2015 that rocketed to 3,100 tonnes. The World Gold Council says total gold supply in 2023 increased 3% year-on-year as mine supply and recycling both posted growth – to total 4,898.8 tonnes.

While silver has taken some of the shine off gold in recent months (as reported by Mining.com.au) at 1,037 tonnes purchased, 2023 represented the second straight year central banks added more than 1,000 tonnes to total reserves.

The year 2022 marked the highest record in decades, with central banks purchasing 1,136 tonnes of gold worth US$70 billion, according to The World Gold Council.

The gold price yesterday slipped to its lowest level in about two weeks yet throughout history, the precious metal has been an unparalleled long-term store of value.

Sprott Asset Management says gold has outperformed major asset classes over the past 23 years in particular, “historically enhancing returns and increasing diversification”.

In the wake of rampant geopolitical tensions, economic uncertainties, lingering inflation, and a heavily-anticipated US election, gold has continued its status as the symbol of safety and reassurance. 

Earlier this month, this news service reported since the beginning of 2024, the bright and dense metal surpassed previous record highs, ending the first quarter at about US$2,232 ($3,409.55) per ounce. At the beginning of the second quarter, gold reached a new all-time high of $3,511 on 3 April.

Just when the precious metal seemed to be losing its shine, the price shot up for a third time. On 20 May, it was sitting at $3,650 per ounce, representing a 2% increase compared to April. 

As Alchemy Resources (ASX:ALY) CEO James Wilson told Mining.com.au: “Gold is doing what gold does best — acting as a barometer of uncertainty.”

Indeed, gold has been a safe haven during economic and political instability. Sprott Asset Management says investors seek out gold for its safe haven quality during periods of economic and political instability.

“Most recently, gold outperformed stocks and bonds in 2022, which was marked by the Russia-Ukraine war, and gold outperformed during the height of the COVID-19 pandemic crisis,” Sprott says.

“According to the World Gold Council, gold’s performance during periods of crisis has risen to become the ‘top reason for central banks to hold gold’. Gold has always served as a store of value.”

Gold has kept up with inflation and its purchasing power has increased. Comparatively, the US dollar has lost value and purchasing power along with it.

Purchasing power

Sprott Asset Management gives the clearest example of gold’s purchasing power.

In 1930, one could buy 2.3 loaves of bread with 1/100oz of gold, while US$1 could buy 11 loaves of bread. In 2023, 1/100oz of gold could buy 10.2 loaves of bread while US$1 can buy just one-half a loaf of bread.

Most Western currencies were backed by gold until disgraced former US President Richard Nixon ended the gold standard in 1971 as inflation began to rise and a gold run was on the horizon.

Once the gold standard ended, foreign governments were no longer able to exchange their dollars for gold; effectively the international monetary system had pivoted into a fiat system.

Basically, Nixon enacted a plan that ended dollar convertibility to gold and implemented wage and price controls, bringing an end to the Bretton Woods system. After World War II, the international monetary system was dubbed Bretton Woods after 44 countries agreed to keep their currencies fixed (yet adjustable in exceptional situations) to the dollar, which was fixed to gold.

The countries then settled their international balances in dollars, and the US dollars were convertible to gold at a fixed exchange rate. As such, the US was then responsible for keeping the dollar price of gold at a fixed rate and adjusting the supply of dollars to maintain confidence in future gold convertibility.

More than 50 years later, amid rising interest rates, central banks have attempted to combat inflation that has been higher than government targets, which in turn has undermined confidence in government reserve currencies.

As Sprott Asset Management notes, gold has served as a store of value and medium of exchange throughout history due to its fixed supply, broad adoption, and safe haven-like characteristics.

“Fiat currencies, such as the US dollar, are also widely used as a medium of exchange but can be printed at the will of governments. Rising money supply and inflation can mean that over the long run, fiat currencies may lose relative purchasing power,” Sprott reports.

“Gold is a physical asset that cannot be hacked, erased or degraded.”

 

 

Mining.com.au Editor-in-Chief Adam Orlando has more than 20 years’ experience in the media having held senior roles at various publications, including as Asia-Pacific Sector Head (Mining) at global newswire Acuris (formerly Mergermarket). Orlando has worked in newsrooms around the world including Hong Kong, Singapore, London, and Sydney.

 

 

mining.com.au