While gold is important for industry and the arts, it also maintains a unique status among all commodities as a long-term store of value. When it comes to fungibility, yes, gold is a commodity. Any ounce of gold is interchangeable with any other ounce of gold (of the same purity). But that's where the similarity between gold and other commodities ends.
Investing in gold bars won't offer the leverage you would get when investing in gold mining stocks. Adam Hayes, professor at the University of Wisconsin-Madison and the Hebrew University of Jerusalem, explains: “Like no other product, gold has fascinated human societies since the beginning of recorded time. The run-up to the Lunar New Year, in late January or early February, is one of the busiest times to buy gold in China, when consumers buy several gold products as gifts or as personal investments. The United States, which originally operated on a bimetallic gold and silver system, followed suit and adopted a de facto gold standard following the Coinage Act of 1834.In addition, gold has long been considered a hedge against inflation and a repository of wealth, and has been a fundamental financial asset for nations and their central banks.
Before we jump on the gold bandwagon, let's first stop the enthusiasm about gold and, first, let's examine some reasons why investing in gold has some fundamental problems. As a commodity, gold serves as a “good counterpoint” to traditional securities, such as stocks and bonds, Bankrate adds. Like no other product, gold has fascinated human societies since the beginning of recorded time. During the wedding season in India, from October to December, large quantities of gold are traditionally purchased not only for brides to use, but also to give new couples what is considered a traditional means of preserving wealth.
Gold is also a long-standing commodity, although I maintain that gold is not a “traditional commodity” and could be a beneficial addition to your portfolio because it is more than just a commodity. The most common way to invest in physical gold is through the SPDR Gold Shares (GLD) exchange-traded fund (ETF), which simply holds gold. In short, history has given gold a power that exceeds that of any other commodity on the planet, and that power has never really disappeared. For the next 125 years, gold competed with silver and paper money for dominance, until Britain formally established a gold standard in 1821, becoming the first country to do so.
In short, gold is a finite resource that has been valued as a repository of wealth for thousands of years and covers countless periods of political tension and market volatility. The main problem with gold is that, unlike other commodities such as oil or wheat, it is not exhausted or consumed.