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The main reason people buy gold is to protect their wealth and preserve purchasing power. For thousands of years, gold has proven to be a reliable and enduring store of value. Unlike fiat currencies such as the euro or the dollar, which constantly lose value through inflation, gold maintains its purchasing power over time. A common example illustrating this is that 2,000 years ago, one could buy a fine tailored suit with a gold coin—and the same remains true today.
When governments print more money to finance debt, the money supply increases and the purchasing power of currency declines. While savings in the bank lose value, gold tends to preserve its worth and often rises along with inflation.
A recent example is the Dutch housing market: property prices have doubled or even tripled in recent years. Those who held gold experienced a similar increase in value, while money kept in the bank lost purchasing power.
Gold is known to perform well during periods of instability. The gold price rose sharply following the outbreak of COVID-19, the war between Russia and Ukraine, and the recent unrest in the Middle East. Gold is a neutral asset—independent of any government or central bank, free of counterparty risk, and globally recognized as a store of value. While currencies can be devalued and government bonds carry default risk, gold generally retains its purchasing power.
Central banks have also been increasing their gold reserves for the same reason. They aim to reduce reliance on the U.S. dollar and protect themselves against geopolitical and monetary risks. The growing gold holdings of emerging economies such as China and India reflect their pursuit of financial sovereignty and stability in an increasingly uncertain world.
Of course, there are also periods when the gold price rises less or even falls. This typically occurs when the economy is performing well and debt levels are decreasing. For that reason, many investors view gold as insurance against difficult times—it provides stability when other assets come under pressure.
Want to learn more about why gold is a valuable investment? Read our Beginner’s Guide.
