Gold as a Safe Haven: History Lesson
A Security Blanket When Times Turn Tough
Ever since countries built centralized monetary systems, gold has been a safety valve from government policies.
One of the more dramatic examples of this reliance occurred in 1931, as the world fought to stem the Great Depression. At the time, America, England and nearly every large economic system used gold as a primary standard for currency. You’ve likely heard of often-told tales of bank runs, as people sought to pull funds from institutions they thought would fail. Less told is the amount of gold that concerned citizens sought to remove from bank vaults over fears that countries didn’t have the strength to support fiat currencies.
In England, citizens traded their pounds in for gold at such a rate the banks nearly ran out of the bullion. With gold reserves depleted, England couldn’t remain on the gold standard. Yet, escaping the standard was so unfathomable at the time, Bank of England’s governor, Montagu Norman had a nervous breakdown, forcing his sabbatical while his successors pressed ahead with the move.[1]
Shortly after England’s decision, the U.S. shifted from the standard as well. Despite this, investors’ relationship with gold has remained. Whenever there are concerns about the economy or the decisions of a central bank, they escape into gold. It’s the asset of choice when seeking safety outside the traditional investing space. And that hasn’t changed for 21st century investors.
That’s because gold provides some inherent safety nets:
- Gold has a track record against fear. It provides a backstop in a portfolio against political risk, inflation, and fear in the marketplace. In 2008, when the markets suffered the initial fallout from the financial crisis, gold was one of the few investments that showed a positive return.[2]
- Gold is a reliable security blanket. Providing protection in a portfolio, gold’s price remains steady — and often improves — when markets turn, economies struggle and stocks fall.
- Gold is trusted by Central Banks. The U.S. Federal Reserve, for example, holds about three-fourths of its currency reserves in gold, signaling even governments see the safety of gold.[3]
Among these benefits, though, a less discussed feature is gold’s flexibility. It has adjusted to modern times throughout history, providing this safety in new, innovative ways.
When central vaults were developed, gold became a primary asset to store away for safekeeping. When electronic trade funds (ETF) were popularized, ETFs based on the precious metal was developed.
And now that the blockchain has created new ways to spend and save through digital currencies, OneGold allows you to hold gold digitally, without worrying about paying for storage. If you decide you want to physically hold the gold at some point down the line, you can then have the gold bullion delivered to your doorstep. It’s all safely tracked on the VaultChain digital ledger.
Digital gold uses the latest technology to adapt gold’s security to modern times, creating a whole new level of flexibility for the precious metal.
Since you never know why you might need gold, it’s better to have multiple ways to hold the bullion. That way, you’ll never have to panic.
[1] NPR, https://www.npr.org/sections/money/2011/04/27/135604828/why-we-left-the-gold-standard
[2] Kitco, http://www.kitco.com/news/2014-10-13/2008-Financial-Crisis-Set-Stage-For-Gold-Rally.html
[3] SeekingAlpha, https://seekingalpha.com/article/294419-how-central-banks-are-pushing-gold-prices-higher
