by Jason ValaVanis, CFP
Most folks understand that gold is rare, but most do not fully comprehend the magnitude of its rarity. All the gold ever mined in the history of the world would fit inside of a 5,000 square foot house. Now, that’s rare! According to the World Gold Council, about 27,000 tons of gold have been mined from the Earth in all of history. To illustrate this, picture a cube of gold 55 feet wide on all sides. That is all that mankind has ever harvested. Since gold is virtually indestructible, all of the gold ever mined is still in possession in one form or another. About half of the mined gold has been extracted since 1950, due to sophisticated mining techniques. Gold is irrationally coveted historically, that hundreds of millions of people have been killed in needless wars only to steal their gold.
Currently, gold is at or above its historic highs, and many analysts say it is going even higher. Want some?
What is the gold being used for? Here is the breakdown: Jewelry: 47.0%, Private investment: 2l.6 %, To Government Treasury Holdings: 17.2%, To,Industry & Electronics 14.2%. Each year, global gold mining adds approximately 2,500-3,000 tons to the overall above-ground stock of gold. While gold production has shown an upward trend in recent years, this is likely to level off again. Due to its high atomic weight (density), gold tends to gravitate towards the center of the Earth, especially during shifting of the Earth’s crust. lt is postulated that immense amounts of gold exist far below the Earth’s crust, but it is essentially unreachable.
How did gold come to be? Unlike what most folks believe, gold did not originate on Earth. Gold was created in the celestial bodies within our universe and most likely delivered here from the billions of years of meteor bombardment. lt is nearly impossible to make gold. Unlike diamonds, gold cannot be manufactured to increase supply. ln fact, theoretically, it’s possible to form gold by the nuclear processes of fusion, fission, and radioactive decay. lt’s easiest for scientists to transmute gold by nuclear bombardment with the heavier element mercury and producing gold via decay. This sounds technical because it is technical. But this takes an enormous amount of energy. About 25 years ago, a scientist created .73 mg of gold from 2200 mg (l-Kg) of mercury using this nuclear process. lt was expensive! Yes, his reaction resulted in a tiny sum of gold, but it cost his laboratory over $300,000 in energy and materials. So, this is one reason gold is so valuable – it is irreplaceable, as history has proven.
Why do investors by gold? The answer is quite simple: lt represents a store of value over time and it tends to increase in that value as the cost of living increases. Nations, cultures, individuals and empires have considered gold as the first and last resort to preserving wealth. Currently, with serious inflation at our front door and international tensions rising overseas, gold is poised for an increase. Not only gold, but silver and other rare-Earth metals as well. There exists funds and other market-based instruments that allow an investor to enter into the precious metals markets, even with a modest sum with little cost. These opportunities are meant for the patient investor, since quick profits are unlikely. Many advisors and talking heads on cable business channels often suggest that investors should keep about t0% of their portfolio in gold or a mix of other precious metals as a hedge against inflation and help protect portfolio value. I believe this all depends on the investor’s comfort level, financial footprint, and personal needs. But like I said, it’s very easy to get in the game nowadays. Want some?
Let me know.
Jason ValaVanis is a Board CERTIFIED FINANCIAL PLANNER@ and the co-owner of ValaVanis Financial in Melbourne
& in Rockledge 33 years. Jason specializes in long-term income planning and wealth growth for ages 50 plus.