Why Do People Return to Gold?

Since the beginning of this year, HSBC and other major financial institutions have expressed bullish views on gold. Each forecast draws attention even from people who rarely follow markets. Gold possesses a curious attraction unlike that of other assets.

Gold pays no interest or dividends and offers no growth story. As Warren Buffett once observed, it simply exists: someone digs it up and someone else puts it in a vault. Yet people turn toward it whenever anxiety rises. This paradox speaks to gold's nature as an asset.

Historical episodes in which gold was chosen as a refuge share a background. Even after the Nixon shock ended dollar-gold convertibility in 1971, gold retained value outside the monetary system. The oil shocks and inflation of the 1970s, the 2008 financial crisis and the 2020 pandemic: whenever trust in institutions shook, people returned to gold. The gold standard ended long ago, but gold retains the memory of being the final collateral.

Keynes called the gold standard a barbarous relic. Attachment to gold can look premodern from the perspective of a rational monetary system. Yet nearly a century after his words, central banks around the world continue quietly increasing their holdings. Something remains that theory cannot fully explain.

Bitcoin is increasingly called digital gold. Its limited supply and independence from state control invite the comparison. But gold has thousands of years of trading memory, while Bitcoin has only a little over a decade. Whether the two can be treated alike remains disputed. Perhaps what they share is their frequent use as expressions of doubt about existing monetary systems.

Geopolitical tension, growing fiscal deficits and anxiety about confidence in currencies bring gold renewed attention. That does not make gold the correct answer. Historically, periods of brilliance have been followed by long stagnation. During the 1980s and 1990s, gold spent roughly two decades losing real value. Being chosen as a refuge and rewarding its owner are not necessarily the same thing.

Returning to gold ultimately answers a question about what people trust when they lose faith in something else: the state, markets, technology, or the weight of a metal unchanged for millennia. Nobody can guarantee that HSBC's forecast will prove right. But asking why people now look toward this old answer can quietly reflect how we understand our times.