Gold has reached a peak value and has become one of the most profitable investments. People are engrossed in buying and selling gold, gold funds, gold exchange trade funds and even jewellery for the sake of its value. In the recent debates over gold being a good investment tool or for its tax efficiency, the fact that gold has won over paper currency is also a hot topic.

When barter trade unfolded its dilemmas, humans developed a commodity called money. Around 5000 BC to 700 BC, money and gold were a single term. However, unlike gold, money was subject to inflation. As the rulers extended the money supply by increasing the production of coins, their value decreased causing inflation for the first time.

When money was in form of gold or sliver coin, it had some value since it could be melted and used for other purpose. Few decades ago, paper money was introduced based on gold or silver standard. The paper money could be exchanged for gold according to gold rate set by the government. Nowadays, no government uses the gold standard; it has been replaced by Fiat currency.

Fiat currency or paper money and non-precious coinage was thus introduced. Some of the earliest known paper money dates back to China. This means that the material that the money is made of is not valuable. Their manufacturing and issue cost is low and paper currency does not have any inherent value.

Each bank note or currency comes into existence when Treasury of a government borrows it from the Federal. This statement entails that these notes are debt obligations of Treasury to Federal Reserve of a government. The value of this currency is unstable. As central bank increases the money supply, its value again goes down. Strength of currency does not depend on healthy and booming economy. However, a weak economy under heavy debts brings fluctuations in its value.

Fiat currency is not tangible as it is subject to the changes by a government. It is created at the whims of politicians. Each government benefits from Fiat currency and thus promotes it. When the price of gold goes up the value of these currencies goes down.

On the contrary, gold is not created or controlled by government. Unlike currency, it is accepted as valuable without any requirement of law. It has always proven to be a method of preserving value when national currency loses value. Gold at this level acts as an insurance policy that protects your power of purchase. It is a store of value and it wins in deflation or inflation. Gold is not dependent on payment of debts.

Lastly, gold wins over paper money in its physical durability. Paper money has a limited life. Every day wear and tear turns it into a part of collection for recycling or shredding. Gold has proven to last a hundred years. Paper currency dies with time, but gold remains in its original form and that with an increased value.