When speaking of Financial Security, we always emphasize that its foundation is gold. However, some might argue that there are other valuable assets in the world, such as crude oil, real estate and diamonds. Why is gold so highly regarded among other valuables?
Challenge accepted – let's see how the yellow metal fights back, responding to competition.
Fight No. 1: gold vs crude oil
Even though crude oil is typically referred to as “black gold”, it is merely a fuel and an industrial resource. Opponents vary greatly in value: even a small grain of gold costs a lot of money, which is not the case for a drop of crude oil.
As of November 5, 2019, the price of an ounce (31 grams) of the yellow metal is $1,504.
The price of a barrel (158.988 liters) of crude oil based on its grade ranges from 50-70 dollars.
It turns out that a compact 1oz gold bar is equivalent to 3,500 liters of crude oil.
Fight No. 2: gold vs real estate
Any house or apartment requires fixed costs: maintenance costs, repair costs and paying taxes. When the need arises, finding a buyer and selling such types of assets quickly can be quite problematic.
You cannot take a house with you on a trip and sell it while you are away unlike gold bars. In addition, ownership of the precious metal is confidential, while property rights are subject to strict accountability.
According to statistics, real estate cheapens during financial crises, as opposed to gold – its price increases during recession, preserving and accumulating the input.
In the chart: housing prices in the United States. Evidently, the figures dropped sharply during the global economic crisis of 2008.
In the chart: for the same period of time, the price of gold demonstrated a steady growth, gaining momentum: nearly $2,000 per ounce.
Fight No. 3: gold vs diamonds
Diamond cutting and polishing is a complex and time-consuming process. All gemstones differ from each other – purity, color, gloss and other factors determine the price. Given that buying diamonds requires knowledge and experience, such products have low liquidity and are not available to the masses.
Gold bars made according to one standard have equal value and do not require comparison of parameters. Moreover, gold is assigned an individual currency code*, meaning that a valuable metal remains a universally recognized financial tool for the foreign exchange market operations. Diamonds lack such a status.
To sum up:
Crude oil is a raw material.
Real estate is a property.
Diamonds are luxury goods.
Gold is the best asset to protect savings and strengthen Financial Security.
*Currency code — a sequence of numbers and/or letters used to name and identify currency in various information transfer systems.