Why gold coveted by the Pharaohs is back in favour
Safe haven
Gold struck a record high of $1,944.71 in Asian trading on Monday as traders piled into the "safe haven" investment, a status that is a product of the characteristics that have long made the metal useful in finance.
An Egyptian discovery
The Egyptians were the first to mine gold somewhere around 3000 BC. The fairly balanced distribution of gold across the planet meant numerous civilisations used the metal in their societies.
Monetary role
If the metal was first used for its aesthetic qualities, from 700 BC it began to be used as money along with silver.
Being rare, relatively easy to extract and work, as well as rustproof, gold was well suited for use as a medium of exchange.
It maintained a central role in monetary systems for centuries.
Abandoning convertibility
It was only less than 50 years ago that gold lost its role underpinning the international monetary system.
It was in 1971 that US President Richard Nixon abandoned the convertibility of the US dollar to gold which had underpinned the post-World War II international monetary system.
Good investments
If gold has lost that monetary role, that doesn't mean it has lost a role as a means of storing value, particularly when other investments could be hit by recession or inflation.
Production of gold has remained relatively stable over time compared with other raw materials. Take for example oil, where the OPEC oil cartel has used its ability to turn on and off the taps to support prices for decades.
Between 2018 and 2019, gold production inched up around one percent, and only thanks to recycling did supply increase by a total of three percent.
Electronic money
While central banks like the US Federal Reserve and the European Central Bank have not printed cash, they have done virtually the same thing by creating electronic money to buy assets such as government and corporate bonds.
Over the past years, they have injected vast amounts of money into their economies in this manner to support growth.
This flood of liquidity tends to lower the value of currencies, and the fact that interest to be earned on government bonds has fallen as central banks snap them up tends to sap demand from foreign investors.
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