Why gold still matters

Investing8 October 20267 min readDiamond Palace Pvt. Ltd.

Every argument against gold is true. It pays no dividend and no interest. It does not grow, innovate, or compound. Storing it costs something, whether in a bank locker or a safe at home. By the ordinary standards of investment analysis it is an unattractive asset.

And yet the institutions with the most sophisticated financial resources available — the world's central banks — collectively hold tens of thousands of tonnes of it, and have been adding to those holdings rather than reducing them. Something is missing from the ordinary analysis.

It is nobody's promise

The thing that distinguishes gold from almost every other asset is that it is not simultaneously someone else's obligation. A bank deposit is the bank's promise to pay you. A bond is a borrower's promise. A share is a claim on a company that must keep existing. Even cash is a liability of the central bank that issued it.

Gold is not a promise. It is a substance. Its value does not depend on an institution remaining solvent, a government remaining stable, or a counterparty remaining willing. That single property is the entire case, and it explains why demand for gold rises precisely when confidence in institutions falls.

It cannot be created

Currency can be issued at will, and across history it reliably has been — to fund wars, to service debts, to manage crises. The quantity of gold, by contrast, grows by a low single-digit percentage a year through mining, and no amount of policy can accelerate it.

This is why gold is described as an inflation hedge, though the description needs care. Gold does not track inflation closely year by year; over short periods it can move sharply in either direction for reasons unrelated to prices. What it has done, over long periods, is preserve purchasing power through episodes when a currency did not. Those are different claims, and only the second one is well supported.

It is portable and universally recognised

A kilogram of gold is worth a great deal and fits in a pocket. It can be identified by weight and density anywhere on earth, without documentation, translation, or a functioning payment system. For populations who have experienced displacement, currency collapse or capital controls, this is not a theoretical advantage.

The case in a Nepali household

For a family in Nepal the practical arguments are specific. Gold is accepted by every jeweller and dealer in the country, so it converts to cash quickly. It is a form of savings a woman can hold in her own name and control directly. It does not depreciate the way a vehicle or an appliance does. And it is counter-cyclical in a useful way: in the kind of crisis that costs people their jobs, gold has often held or increased its value in local-currency terms.

Set against that, gold does nothing while you hold it. A fixed deposit pays interest. A business reinvests and grows. Land can be farmed or rented. Gold simply sits — which is exactly its virtue in bad times and exactly its weakness in good ones.

The honest limits

A balanced view requires saying plainly what gold is not:

It is not a growth asset. Over long periods, productive investments have generally outperformed it.
It is not stable in the short term. Gold can fall substantially and stay down for years.
It is not a trading instrument for most buyers. The dealer spread — and, on jewellery, making charges — mean a rapid in-and-out trade usually loses money.
It generates no income, so it cannot fund living expenses without being sold.

The sensible conclusion is that gold is a holding, not a bet — a portion of savings set aside against the possibility that the rest does not work out, and sized accordingly. Nobody who understands it well recommends holding only gold. Very few recommend holding none.

Gold bought as savings should be bought to keep. If a purchase might need to be reversed within weeks, the spread between sale and purchase rate — plus any making charge — makes it an expensive decision.

Gold and silver together

The two metals are not interchangeable. Gold is the denser store of value — more money per gram, less affected by industrial demand, steadier. Silver is cheaper to enter, far more volatile, and genuinely consumed by industry, which gives it a different demand profile entirely. Many buyers hold both, starting in silver because the entry point is lower and adding gold as savings allow.

Gold has outlasted every currency ever issued, every empire that minted it, and every argument for its obsolescence. It will not make anyone rich. It has, repeatedly, stopped people from becoming poor.

← All articles Today's silver price