Stocks, bonds, and paper currency can lose all of its intrinsic value but that will never be the case with gold. It is a tangible asset with liquidity and will always be in demand because it is rare and inflation-proof. It retains value through natural disasters, war, and periods of social and political unrest. Gold is the only currency that is truly international and its use as such marked the dawn of international trade.
Investors can buy gold coins or jewelry or they can invest in gold stocks. Holding stock in a company that produces the precious metal does not guarantee that the investment is secure. The company may fold, but the gold will maintain its value. It is especially attractive during times of economic, political, and social unrest. While these situations cause other types of investments to lose value, they cause the gold price to rise.
History reveals the use of gold as a currency to purchase services and goods. Gold coins are portable and carry dense valuation. Gold can be divided into different measures with values that correspond to its mass. The fact that gold was extremely valuable to many economies worked against using the rare metal as currency. Governments turned to token coins made from less precious materials but back by gold values.
However, once the amount of money issued exceeds the amount of gold reserves, the currency becomes undervalued. The value of paper currency is symbolic, worth only what it can be exchanged for in terms of goods and services. When inflation is very high, paper currency can lose almost all of its value due to skyrocketing prices. But, gold will never lose its intrinsic value. The value of gold will actually increase when a token economy collapses.
Even when the U.S. Treasury sold over $4 million worth of gold at the direction of President Grant, the price of gold never fell below what it was prior to the Civil War. Investors are attracted to gold because they fear the devaluation of currency and default of paper forms of investment like stocks and bonds. Gold cannot be matched as an inflation hedge, store of value, and liquid asset so it should form the heart of a diversified portfolio.