Alternative Assets: Gold
Why Gold Has No Business Being Worth Anything — and Yet
Gold produces nothing, pays nothing, and does nothing — and it has been the most reliably valuable substance on earth for five thousand years.
The Idea
Most assets have an internal logic. A share of a business entitles you to a slice of its earnings. A bond promises a stream of interest payments. Property generates rent. Gold does none of these things. Leave a bar of it in a vault for a century and you will return to find... a bar of gold. No dividends. No yield. No compounding. Warren Buffett famously pointed this out: all the gold ever mined would fill roughly three Olympic swimming pools, and if you melted it into a cube, you could walk around it in about thirty seconds. The cube produces nothing. Why would a rational person want it? And yet. Gold has outlasted every empire, currency, and financial system that ever tried to replace it. The Roman denarius collapsed. The British pound surrendered its gold backing. The US dollar was untethered from gold in 1971, an experiment still running. Gold persisted through all of it — not as a relic, but as a benchmark that serious people return to when they stop trusting paper promises. The key insight is that gold's value is not intrinsic — it is consensual. Its worth rests on a collective agreement, sustained across thousands of years and every human civilisation, that this particular metal will always find a buyer. That is not irrational. It is one of the most durable social contracts ever written. When everything else feels uncertain, the one asset everyone has always agreed on starts to look less like superstition and more like the only honest anchor in the room.
In the World
In August 1971, Richard Nixon appeared on American television and announced that the United States would no longer convert dollars into gold at a fixed rate. It was a seismic moment — the severing of the last formal link between the world's reserve currency and the metal that had underpinned it. Economists called it the Nixon Shock. Many predicted gold would drift into irrelevance once its official monetary role was gone. The opposite happened. Gold, which had been fixed at around 35 units of account per ounce under the Bretton Woods system, spent the following decade climbing to over 800 units per ounce by January 1980 — a staggering run driven by inflation, oil shocks, and a profound loss of faith in the dollar's purchasing power. The metal that supposedly had no use had just delivered one of the great runs in financial history the moment governments stopped trying to control its price. More recently, during the financial chaos of 2020, gold crossed 2,000 units of account per ounce for the first time, as central banks flooded economies with newly created money and investors scrambled for something — anything — that could not be printed. In 2024, it crossed that threshold again and kept climbing, this time driven partly by central banks in China, India, and Russia quietly accumulating reserves and reducing their dependence on dollar-denominated assets. The people most professionally sceptical of gold — central bankers — turned out to be among its most enthusiastic buyers.
Why It Matters
Understanding gold reframes how you think about value itself. Most of us assume the things in our wallets and bank accounts are stable by nature. They are not — they are stable by consensus, backed by institutions whose credibility fluctuates. Gold is a mirror held up to that consensus: when it rises sharply, it is usually telling you that a significant number of people are losing faith in something more fundamental. This does not mean you should rush to fill your mattress with it. Gold's long-term real return — that is, after inflation — is actually quite modest compared to equities over most multi-decade periods. It tends to shine most in short windows of genuine systemic stress, and then underperform for years either side. As a store of value through time, it has few rivals. As a growth engine, it is a poor candidate. The more useful takeaway is this: gold teaches you to ask what any asset is really backed by, and how durable that backing actually is. That question applies to currencies, to bonds, to real estate, and to the financial promises you rely on every day. Gold does not answer the question — it just keeps asking it.
A Question to Ponder
If gold's value rests on a collective agreement rather than any fundamental property — what other things in your financial life are sustained by the same kind of shared belief, and what would it take to break it?
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