By Ricardo Evangelista

For millennia, gold has held a unique position as a universal symbol of wealth, serving as a unit of account, a store of value, and a medium of exchange. Its allure has persisted through ages of economic turbulence and transformation. As of today, with gold prices reaching an all-time high of $2,500 per ounce, a standard 400-ounce (11.3 kilos) gold bar is now valued at a staggering $1 million. This milestone not only reflects the precious metal’s enduring appeal but also offers a lens through which to examine broader economic shifts, particularly in relation to the value of money and the growth of investment markets like stocks.

To appreciate the current value of gold, it is instructive to look back at its price history. In 1933, during the throes of the Great Depression, President Franklin D Roosevelt suspended the US dollar gold standard. At that time, the price of gold was fixed at $20.67 per ounce, meaning that the same 400-ounce bar would have been worth just $8,268.

Fast forward nearly a century, and the price of gold has surged, propelled in part by its relative rarity. Throughout human history, only about 200,000 metric tons of gold have been mined—enough to form a cube roughly 20 meters on each side, valued at around $16 trillion by today’s prices. An additional 50,000 metric tons are estimated to remain underground. This scarcity is a key driver of gold's value, as the metal's supply cannot easily be expanded to meet rising demand. However, the dramatic rise in gold prices over the decades cannot be attributed to scarcity alone.

A critical factor behind gold's skyrocketing value is the massive expansion of the global money supply. Central banks worldwide have been increasing money supplies to support their economies, especially during economic crises. This has led to the devaluation of fiat currencies, making gold—a scarce, tangible asset with intrinsic value—more desirable. In this context, the rising price of gold may be less about the metal itself appreciating and more about the purchasing power of money diminishing.

There is another aspect of the evolving dynamics of wealth that warrants attention. If we revisit 1933, the market capitalization of the New York Stock Exchange was then of approximately $15 billion. Fast forward to August 2024, and this value has ballooned to $28 trillion—an amazing increase of 186,000%, far outpacing the impressive12,000% gains in the price of gold over the same period. While this extraordinary growth can partly be attributed to the fact that US stocks were at a low point in 1933, in the aftermath of the 1929 crash, it also reflects the increasing confidence investors place in the future performance of companies, particularly in the tech sector. However, some observers have concerns about the sustainability of such lofty valuations.

The question then arises: How should we handle the astonishing devaluation of money and the exponential growth of speculative investments like stocks over the last century? Both dynamics arguably make gold look like a safe bet, serving as a hedge against both inflation and market volatility.