Why and how gold is traded

Why and how gold is traded

Gold has interested people since the beginning of the first great civilizations, and today is no different. Is it worth investing in gold these days? And what is the truth of the fact that this precious metal should not be missing in any seasoned investor's portfolio? If you decide to really invest in gold, there are several ways to do so. So which one do you choose? You will find out all this within the next ten minutes.

A brief history of gold

 Gold, like salt, was the origin of our ancestors' first economic interactions. With history moving in full swing and the first civilizations beginning to emerge, gold has become a widely accepted currency (like silver, for example). And that was the case until recently. Gold's role as a currency convertible to dollars was cemented in 1944 by the so-called Bretton Woods international monetary system.

  It elevated the US dollar to the status of the world's reserve currency and ensured its convertibility into gold. The fixed exchange rate was set at $35 an ounce of gold. In practice, this meant that central banks could exchange their own currency for dollars with the US Federal Reserve (US Federal Reserve) and dollars for gold.

  However, the Bretton Woods system proved imperfect over time and was abandoned in 1971. This moment is a historical milestone when gold lost its status as a medium of currency, which it had held for several millennia. Today, therefore, the value of any of the world's currencies is not tied to this precious metal. So what is the reason to invest in gold?

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Why trade gold?

Because gold holds value

Since gold reserves are limited and neither alchemists nor scientists have (yet) invented a philosopher's stone that would allow them to produce gold, the price of this shiny metal tends to go up. In addition, new deposits are not frequently discovered, and if any do appear, extraction often proves to be economically unprofitable. In addition, the slower the increase in gold reserves in the world, the higher its price will be. Investing part of your free capital and buying a certain amount of gold may be a suitable (not only) way to maintain its value.


Because gold is a "safe haven"

The term safe haven refers to assets that have the ability to withstand markets that have been disrupted by economic, political and other crises. While the value of some global currencies or stocks tends to decline during these times, gold behaves in exactly the opposite way. This is also due to the fact that investors view gold as a safe haven, so while the markets are volatile and the advent of turbulent period is palpable, the investors are pouring their capital into gold. As a result, its price continues to rise.


Because gold protects against inflation

 Depending on people's financial literacy, the way they try to preserve the value of their savings also changes. So, while some store their savings in cash in a cup on the shelf, leaving it within reach of thieves (and inflation), others who want to defend themselves against money depreciation invest in gold.

  As mentioned earlier, the value of gold tends to grow slowly but surely. Even with the occasional lower value though. This cannot be said, for example, about currencies, which are often torn apart by inflationary convulsions.