Gold is a "Hard Asset
Investing in Gold Financial analysts classify gold as a "hard" asset, meaning that it has value in and of itself. Stocks, bonds, and even cash are categorized as "soft" assets because their value is dependent upon your faith in a third party to support the value of the asset.
In the case of stocks or corporate bonds, the value of the stock or bond is tied directly to the performance of the company that issued it. There is no intrinsic value in a stock or bond certificate. From the perspective of intrinsic value, it is literally worth the paper it is printed on! And the same is true of paper currency. The dollar bill in your wallet is backed by the full faith and credit of the United States Government. If a majority of people were to lose faith in the financial credibility of the United States Government, it would have a direct and adverse affect on the value of that dollar. Not only that, but the dollar is subject to inflation. "A dollar doesn't go as far today as it used to" is a phrase we have heard many times. And it's absolutely true! The value of a dollar will also vary relative to the strength of other world currencies. A U.S. dollar is not worth the same number of English Pounds, Japanese Yen, or Euros from day to day.
Alan Greenspan, testifying before congress, said:
"I do think there is a considerable amount of information about the nature of a domestic currency from observing its price in terms of gold. It is a longer term issue. It is an issue which I think is relevant, and if you don't believe that, you always have to ask the question why it is that central banks hold so much gold which earns no interest and which costs them money to store. The answer is obvious: they consider it of significant value and, indeed, they consider it the ultimate means of payment, one which does not require any form of endorsement. There is something terribly important that the gold price is telling us. I think that disregarding it is to fail to recognize certain crucial aspects of the value of currencies."
Many financial advisors will recommend that a diversified portfolio should have some "hard" assets in addition to "soft" assets. And over thousands of years, gold has proved to be the most popular and enduring "hard" asset in the world.