Gold as a Store of Value
A store of value is something that keeps its purchasing power over time, so you can save today and spend later without losing much in real terms. Gold has played that role for thousands of years because it is durable, scarce, and widely accepted. But its record comes with important caveats: it pays no income, its price can fall for years, and buying, storing, and selling it all cost money.
What "Store of Value" Means
Economists usually describe money as having three functions: a medium of exchange, a unit of account, and a store of value. A good store of value should:
- Last. It should not spoil, rust, or decay.
- Be scarce. Its supply should not be easy to expand.
- Be widely accepted. People should want it in the future, too.
- Be portable and divisible. You should be able to move it and split it.
Gold scores well on all four. Our page on why gold has value explains the physical traits behind that.
The Problem It Is Meant to Solve
Paper currencies tend to lose purchasing power over time because prices generally rise. The Bureau of Labor Statistics' CPI data shows that the U.S. dollar has lost the large majority of its purchasing power since the early 20th century. The BLS CPI Inflation Calculator lets you check the change between any two dates since 1913. Savers who held only cash, earning less than inflation, saw their real wealth shrink.
Some people hold gold as a potential way to preserve purchasing power across decades, reasoning that its slowly growing supply cannot be expanded by policy decisions. For more on that problem, see how inflation erodes purchasing power.
The Long Historical Record
Gold has been valued across many civilizations, from ancient Egypt to the Roman Empire to modern central banks. In more recent U.S. history:
- 1933–1934: Executive Order 6102 required most Americans to turn in gold coins and certificates, and the Gold Reserve Act of 1934 raised the official price to $35 an ounce, as described by Federal Reserve History.
- 1944: The Bretton Woods agreement anchored the global monetary system to the dollar, and the dollar to gold.
- 1971: In August, the U.S. ended convertibility of dollars into gold for foreign governments, and gold's price soon began to float freely.
Over the decades since, the dollar price of gold has risen many times over, while the dollar's purchasing power has fallen. You can compare the two series yourself using LBMA gold price history and BLS CPI data. That long arc is the core of the store-of-value argument.
The Caveats
Long slumps happen
Gold's store-of-value record holds over very long periods, not every period. After peaking in January 1980, gold's price fell for roughly two decades, losing most of its inflation-adjusted value. After a high in 2011, it declined for several years before recovering. Someone who bought at a peak could wait a very long time to break even in real terms. Our gold price history page walks through these cycles.
No income
Gold does not pay interest, dividends, or rent. When interest rates are high, savers can earn real returns in cash or bonds, and holding gold means giving that up.
Costs add up
Physical gold involves a premium over spot when buying, a spread when selling, and possibly storage and insurance fees. Over short holding periods, those costs can outweigh price changes. See premiums and bid/ask spreads.
Taxes
Long-term gains on physical gold are generally taxed as collectibles, with a top federal rate of 28%, according to IRS Topic 409. That rate is higher than the top rate on most long-term stock gains.
A Balanced Takeaway
Gold may be best understood as a long-term store of value rather than a short-term trade or an income source. Some people hold a portion of their savings in gold as one way to diversify and to hedge against the possibility of currency weakness, accepting that its price may move around and could fall. How much, if any, depends on your circumstances, and a licensed financial professional can help you decide.
If you choose to hold physical gold, compare dealers on product range, pricing transparency, and buyback terms. Goldco is a precious metals company offering gold and silver for direct purchase and self-directed retirement accounts. It advertises a buyback program for IRA-approved coins; review the written terms before relying on it. Our page on the Goldco buyback program covers what it advertises.
Frequently Asked Questions
Is gold a better store of value than cash?
Over very long periods, gold has preserved purchasing power better than idle cash. Over shorter periods, cash is more stable in dollar terms and can earn interest. They suit different needs.
Is silver also a store of value?
Silver has a long monetary history too, but it has more industrial demand and has been more volatile than gold. See silver and inflation.
How long should someone hold gold as a store of value?
The store-of-value case rests on long horizons, often many years. Short holding periods may be dominated by price swings and transaction costs.
Can gold lose value?
Yes. Gold's price has fallen substantially at several points in history and may do so again.