Throughout its history, gold has been regarded as a valuable commodity and safe-haven asset. It’s garnered a reputation as a store of value over time and has been constantly appearing as a recurring character throughout the ages, in different civilizations, and under varying economic conditions.

This article examines just that – its lasting role as a safe-haven asset throughout history, and its value as an inflation hedge, portfolio diversifier, and stable asset during economic and geopolitical instability.

Gold’s relatively stable value has led it to become the go-to asset to hedge against riskier or more volatile investments and is essential for wealth preservation in a well-diversified and balanced portfolio.

To understand gold in a monetary sense, we must understand where gold appeared and made the biggest impacts. So, we will explore the historical instances where the value of gold was preferred, and highlight its modern implications in today’s economic landscape.

Historical Importance of Gold in Economic Instability

We begin by looking at gold and its place within history. Its utility as a status symbol and economic tool stretches back thousands of years, playing an integral role in shaping monetary systems and financial strategies around the world.
The are many points in history where gold had a major role to play during economic turmoil, but the five we would like to mention are:

1. Gold’s First Major Role in Wealth Preservation Gold’s value can be dated back to the 5th millennium BC when it was used as a status symbol, when the earliest records of gold being placed among the buried – when the spirit is said to be sent off to the afterlife – took place.
    
   However, later records showed gold not just carrying visual appeal, but also used as a store of wealth by ancient civilizations like Mesopotamia and Ancient Egypt. It had become a way to preserve and pass on wealth – like an inheritance tool used in estate planning. This is important to us because the way we envision gold has changed little; we still see it as a timeless asset and still use it as a vehicle to pass wealth through the generations.

   
   

2. The Roman Empire and Gold The Romans loved gold – jewelry, ornaments, pots – they made whatever they could out of gold. They most obviously used it as a currency as well. They had 3 different coins: bronze, silver, and gold – the latter (Aureus, as they called it) being the highest-valued denomination.
    
   The intrinsic value of gold allowed the coin to maintain its worth especially during periods of significant political instability when the values of other coins were decreasing or when the silver coins – denarii (pl.) – crashed altogether during the barbarian invasions of the 3rd century.
    
   Gold retained its value until the end of the Roman Empire and continued into the Byzantine Empire under Constantine the Great. So much so, in fact, that it was the new monetary backbone in Europe that laid the foundation for Constantine’s new empire.  

   
   

3. Gold and the Classical Gold Standard (1880–1914) During the Classical Gold Standard, nations pegged their currencies to a fixed – but not equal – quantity of gold. This system created unprecedented growth, facilitating relatively free trade in goods, labor, and capital, and prevented governments from overprinting money.
    
   However, the onset of World War I in 1914 led many countries to suspend the gold standard to print more cash for war expenses, causing an increase in inflation. By the time the war ended in 1918, the whole system had largely collapsed, rendering the Classical Gold Standard essentially unrevivable.
   
   

4. The Bretton Woods System (1944–1971) Another war, another system. After World War II, the Bretton Woods Agreement saw that countries fixed their currency to the dollar, and the U.S. dollar to gold at $35 an ounce, making it the global reserve currency. While this succeeded in creating economic stability for several decades, the growing U.S. deficits and inflation in the 1960s due to the Vietnam war forced the then U.S. President, Richard Nixon, to abandon the gold standard in 1971, effectively ending the system.
   
   The breakdown of the Bretton Woods system denied countries pegging currencies to gold, which meant that countries could only really peg to each other’s currencies – or a basket of currencies – contributing to rising inflation.
   
   

   (Editor’s note: For those keeping count, the Vietnam war is the third war mentioned in this article that’s related to gold. As we’ll read shortly, that may not be a coincidence).
   
   

5. Hyperinflation and Gold’s Role in Preserving Wealth In countries that have experienced hyperinflation, such as Zimbabwe in the 2000s and Venezuela in the 2010s, local currencies become almost worthless. So, countries have started to adopt their own gold-backed currencies, and some are getting very modern with it.
    
   In 2023, Zimbabwe released its own digital gold token called Zimbabwe Gold (ZiG). Now in 2024, they have rebranded ZiG tokens to GDBT and are releasing ZiG as paper currency to the people. Zimbabwe’s dire need to mitigate hyperinflation offset by the intrinsic value of gold would ideally provide a critical lifeline for people looking to not only preserve wealth but also to utilize a less volatile currency for everyday needs.

Gold's Modern Role in Economic Uncertainty

With global economies intertwined as they are today, any number of isolated or overlapping economics uncertainties could be occurring – geopolitical tensions, rising inflation, market volatility, etc. What we have seen in historical trends is that in these situations, gold remains a relatively valuable asset. Why? Well, briefly:

1. Gold as an Inflation Hedge Gold has consistently been regarded as an effective hedge against inflation. When inflation erodes the purchasing power of fiat, gold prices tend to rise.
   This is because gold’s value is intrinsic and not tied to any currency or economy.
   For example, during the 1970s, gold prices soared to a then-record of $665 as inflation hit 14% at its peak due to expansionary monetary policies.
   
   In more recent terms, the global COVID-19 pandemic disrupted global supply chains, and many central banks injected massive amounts of liquidity into economies through quantitative easing.
   
   This of course rang alarm bells in people’s heads, heightening inflation fears. So, as inflation rates expectedly went up, and hit their highest levels since the 1980s, gold again gained appeal as a hedge against currency depreciation.





   
   

2. Gold’s Appeal During Geopolitical Tensions During periods of geopolitical uncertainty – such as international wars or regional conflicts – investors tend to flock to gold; its value is less likely to be affected by shocks than other assets like stocks or currencies.
   
   For instance, gold prices surged in the wake of the 2008 Global Financial Crisis and again during the 2022 Russia-Ukraine conflict, as investors continuously sought financial protection from matters outside of their control.
    

3. Portfolio Diversification and Risk Management A common tip from financial advisors is to add gold to create a diversified and balanced investment portfolio, particularly when economic weather points to potential or ongoing distress.
   
   This is because historical trends show that gold typically has a low or even sometimes negative correlation with stocks and bonds, which means it can help balance losses other asset classes are draining during market downturns or a weakening dollar.
   
   For example, while the stock market plummeted during the 2008 financial crisis, gold prices rose by nearly 50%, providing much-needed protection for investors.





   
   

4. Central Banks and Gold Reserves Central banks have long employed the strategy to hold gold as part of their reserves to mitigate risks associated with fiat currencies. More recently, countries like Russia and China have increased their gold reserves to diversify away from U.S. dollar holdings.
   
   In 2023, central banks added 1,037 tonnes of gold to their reserves, the largest annual increase on record, signaling growing distrust in global financial markets.

The Rise of Digital Gold and Gold-Backed Tokens

As financial markets continue to evolve, so too has gold evolved in modern-day investing. Today, digital platforms offer innovative ways to invest in gold (platforms like Lexim Trading), including gold-backed cryptocurrencies and blockchain-based tokens.
 
Gold on Blockchain Platforms Blockchain technology allows for the digitization of physical gold, enabling fractional ownership and seamless global transfers. Gold-backed tokens such as PAX Gold or Tether Gold (XAUT), and our very own digital gold (DAU), all allow investors to own digital gold that is fully backed by physical gold reserves.

This opens the door to smaller retail investors, providing an easy way to buy, sell, and trade gold without the burden of physical storage.

There is also the case of the ZiG/GBDT – the Zimbabwean digital gold token mentioned earlier. This is a perfect example of the rise of digital gold – that a nation’s government would use this as a form of currency to alleviate its financial struggles.

Comparing Gold to Other Safe-Haven Assets

While gold is a time-tested hedge, it is important to compare it with other safe-haven assets to understand its role in a modern portfolio.

1. Gold vs. Bonds Government bonds, especially U.S. Treasuries, are another popular safe-haven asset. While bonds offer passive income through interest payments, they also come with a risk of being tied to a government’s performance. This, as we’ve read so far, is not always stable or reliable. In inflationary times, bond yields may not keep up with inflation, resulting in reduced returns. Gold, on the other hand, typically maintains its value and can outperform bonds during times of rising inflation.



   
   

2. Gold vs. Real Estate Real estate is often viewed as a long-term inflation hedge, and can offer substantial ROIs like passive income or capital appreciation, but it comes with its own limitations. High capital requirements, liquidity constraints, and market risks tied to interest rates are the biggest factors working against real estate investment.
   
   Unlike real estate, gold offers more liquidity and can be easily bought or sold in global markets, making it a more flexible safe-haven option. If you’re buying bullions, there are added costs of storage and insurance but that is easily mitigated using a platform like Lexim Trading to purchase its gold-backed tokens with free storage.





   
   

3. Gold vs. Cryptocurrencies Cryptocurrencies that are backed by speculation or are without utility pose as a very risky investment for anyone looking to grow their portfolio. They are highly volatile, intangible by design, and their value can fluctuate dramatically.
   
   However, coins like Bitcoin have emerged as a potential alternative to gold due to their limited supply and decentralized nature. It is important to keep in mind, while Bitcoin is sometimes referred to as “digital gold”, its volatility limits its use as a reliable safe-haven asset when compared to the stability of physical gold. At least for now.
   
   Some coins with utility, or real-world applications, prove to be somewhat less risky, but there is still a proven track record with gold to contend with. Having said that, there is a middle ground: gold-back tokens. It’s the merger of the two and has proven to be a strong and reliable investment avenue. 





   
   

4. Gold vs. Stablecoins USDT and USDC are examples of stablecoins that are tokens pegged to USD. They derive their value from, again, the USD; however, as we’ve mentioned before, gold’s value is intrinsic; it is not pegged to a currency nor is it vulnerable to the precariousness of fiat when some form of turmoil hits a nation.
    
   Gold is instead a store of value that has the potential to appreciate over time, whereas stablecoins like USDC or USDT remain fixed to the dollar and fluctuate with it accordingly. These stablecoins tend not to grow wealth, either (unless you are staking them but that’s a whole other article).
    
   Having said all that, stablecoins can also be backed by financial instruments or commodities, meaning that gold backed tokens are a form of stablecoins. This form of stablecoins have also been found to work just as well as traditional gold investments in terms of hedging investment portfolios, as well as less risky investments when compared to Bitcoin and other forms of stablecoins.

Conclusion

So, we’ve now briefly seen that throughout history, and in its current evolved form, gold and gold-ownership has proven its resilience as a store of value during times of economic uncertainty, inflation, and geopolitical risks.

From its early modern role in the classical gold standard to its more modern-day applications in digital assets, gold continues to offer a reliable hedge against currency devaluation and market volatility.

As central banks increase their gold reserves and blockchain technology revolutionizes and simplifies gold investment, gold remains a vital asset for safeguarding wealth in today’s uncertain world.