Gold’s Natural Scarcity Propels its Valuation Growth

The U.S. abandoned the gold standard in 1933. But ninety-one years later, in the midst of an inflation crisis, investors are flocking back to the original.

The U.S. government is set to print about $200 billion in bills in 2024. That’s $548 million for every day. Despite the rampant inflation reducing consumer purchasing power around the country, the Fed continues to exacerbate the existing crisis by flooding the money supply. Following inflation peaks during COVID-19, rates remain high at a projected 2.3% in 2024. With an average savings account interest rate of only .45%, dollarized savings are steadily losing their value. But while the dollar loses its worth, the value of gold is skyrocketing due to a critical distinguishing factor: natural scarcity.

Since gold is a finite resource, its supply does not exponentially increase along with demand. And in recent years, growth in the gold supply has been faltering. According to John Reade, a World Gold Council Strategist, “After 10 years of rapid growth from around 2008, the mining industry is struggling to report sustained growth in production.” The once-prolific growth in gold mining output is now showing signs of faltering.

Part of the decline is due to a decrease in “low-hanging fruit” in the form of high-volume gold discoveries. In the past few years, the number of new gold deposits found exceeding 10 million ounces has fallen precipitously. Additionally, many of the world’s largest gold mines have seen steep decreases in output. As they continue nearing the end of their productive lives, the supply of gold is poised to tighten.

But while supply growth has slowed, the demand for gold appears ripe for growth. The natural scarcity of the mineral insulates it from the depreciation caused by the FED’s money-supply increase. As the world’s central banks continue to print money and economic uncertainty persists, investors seeking a safe haven and a store of value have continued to turn to gold, further fueling its price appreciation.

Gold’s outpacing of the dollar isn’t a recent phenomenon. In 1960, an ounce of gold could purchase 150 loaves of bread, while a dollar could purchase five. Today, an ounce of gold can purchase 715 loaves of bread, while a dollar isn’t even worth one. During those 64 years, gold’s purchasing power almost quintupled, proof that the practical, physical uses of gold maintain its value. In standard fiat-currency form, the dollar depreciated ten-fold during the same period.

While the dollar’s value is tied to the capricious whims of the Fed, gold’s worth is tied directly to its practical uses, many of which continue to be discovered. Gold’s malleability and corrosion resistance suit it for cutting-edge aircraft panels, and its anti-inflammatory properties are used in arthritis medication. Gold is also utilized in electronic circuitry, pollution reduction, and dentistry. A specific isotope, gold-198, has even been employed in cancer treatment. Year after year, more uses are found for gold, and its demand keeps increasing. As inflation continues to ravage savings accounts, gold’s physical utility provides a safehouse to weather the storm.

Gold doesn’t just dominate the dollar, but the stock market as well. A pivotal advantage that distinguishes the mineral from paper assets like stocks is its physical limitations. While corporations can dilute shareholder value by issuing more shares at will, gold’s natural scarcity fuels its rise. Many counter that the NASDAQ’s consistent growth is an indicator of the stock market’s superiority. But since 2000, the growth of gold has almost doubled that of the NASDAQ,  788% compared to 425%. During COVID, while nearly every industry was faltering, the mineral maintained and even increased its value. Gold’s practical uses and rarity help to insulate its value from typical market crises.

As the world’s central banks continue to pursue expansionary monetary policies and geopolitical tensions persist, the demand for safe-haven assets like gold is likely to remain strong. The combination of increasing demand and declining discoveries of new deposits points to a future where gold’s natural scarcity will drive its value. With these supply constraints expected to intensify in the coming years, gold will be well-positioned to weather the economic storms ahead and is set to continue its scarcity-driven price appreciation.