Limitations on supply
Money printing versus gold mining
People often ask what gives gold bars or money their value. In truth it is humans that perceive this value, and this come from supply and trust. Assets of limited supply are deemed more valuable, and have often been deemed a good form of money. So how do gold bullion and cash compare when it comes to limitations on their supply?
As Fed Governor Ben Bernanke said in his famous 2002 speech, central banks have the modern day version of a printing press that can create unlimited amounts of dollars, euros and pounds. With central bankers’ having the ability to magic money out of thin air, and typically trying to solve financial crises by money printing, the value of cash is difficult to guarantee.
In contrast gold’s value is not set by a central authority. It is this marked difference in supply, and therefore rarity, that makes gold bullion bars so valuable in today’s world of unprecedented central bank intervention. The supply of gold is strictly limited by nature, is not subject to ideology or politics. In fact, the supply of gold is more steady and limited compared to other monetary alternatives.
With all the gold ever mined fitting into a cube only slightly larger than 20 metres cubed, gold bullion is very different to printed dollars, euros and pounds. It is the marked contrasts in supply that makes gold investments a superior store of value, and perhaps also a better savings mechanism.