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What is all the fuss about gold?

28 July 2020

Written by Ralph Hazell

Gold

Gold is in the headlines at the moment, with the price of gold rising as people seek to protect their savings in times of uncertainty.

What is the price of gold?

The first thing to explain is how is gold priced, and in turn, how is Tally priced.

Around the world when people refer to the price of gold it is usually given as the cost of one troy ounce of gold in US$. Yesterday the price of gold went through its historical record high of $1,920 per ounce and is currently just below $1,950 per troy ounce.

Troy ounces is a historical way of measuring gold. Here in the UK (and of course at Tally) we look at the price of gold in pounds sterling (£) per kilo.

When Tally went live in mid June 2019, the price of gold in pounds per kilo was at about £34,000/kg. Today, just over one year later the price of gold is just below £48,500. That’s an increase of 42.5% since we launched.

One Tally is one milligram of gold. This means that one Tally has gone from being worth 3.4 pence to now being worth 4.85 pence since June 2019.

Gold is generally considered a safe haven that people buy in times of uncertainty. But gold is much more than just a hedge of inflation or uncertainty. Gold has been used as money since the beginning of recorded history. It's often cited that the amount of goods that you can buy today with a unit of gold, in terms of its purchasing power, is very similar to what a gold coin of similar weight would have bought 2,000 years ago in ancient Rome. Gold has consistently retained its purchasing power over time.

The price of gold may go up and down in the short-term when priced in terms of modern currencies. However history has shown it is quite stable in terms of purchasing power, what a weight of gold buys today will likely be similar in 10 or even 100 years time...

The same enduring purchasing power is not the case with government issued fiat currency. Some goods and services such as consumer electronics benefit from technical innovation and may go down in price from year to year. Mostly the price of goods and services steadily increase - if you look at a basket of goods and services and especially the price of property over the last 50 years it’s much easier to see the declining purchasing power of the British pound and other government currencies.

Why is the gold price rising now?

We are certainly living in uncertain times. Governments around the world are digitally ‘printing’ huge sums of money to help cushion the economic blow caused by Covid-19 and the lockdowns. Investors are worried that the creation of this new money could mean that government money will lose its value more quickly than normal, and are buying gold to protect their savings from inflation. As more and more people feel this way, and the governments continue to print money, the price of gold will probably keep rising. There are also some pretty big geopolitical tensions, just to add to the backdrop.

The previous global high of gold in US$ per troy ounce of $1,920 was achieved in 2011 during the global financial crisis. People had similar worries with governments printing and borrowing large sums of money to bail out the banks. The price went from $1,600 to the high of $1,920 in just 3 weeks. The price rises in gold recently have been much more steady. Normally at the end of a bull run you see a rapid price rise. We have seen this yet.

We created Tally to make it easy for regular people to protect their savings in times of uncertainty. Tally is gold in a bank account with all of the usability of a bank account including a debit card. And all the benefits of gold without the hassles that often come with gold ownership - such as minimum quantities and instant liquidity. We think it's important for people to understand how money really works so that they can make better decisions in what money they should save and transact in.