What Most People Don't Know About Gold
It's only very recently, since 1971-when the US. government proved unable to keep the price at $35-that gold has been viewed as a speculation. In those days gold was an ideal speculation, with minimal risk but a huge upside.
Gold has been in a free market for three decades now; the frenzy of the'70s that took the metal from $35 to more than $800 disappeared, and was followed by a 21-year bear market. As a result, an entire generation of investors has grown up thinking that gold is not only not money but an investment dog. Their thinking is about to change. I believe that not only will gold again be used as money, but that it has entered a new longterm bull market,
Before looking at where the metal's price is likely to go over the next few years, however, it's worthwhile to consider some of the fundamentals... fundamentals that not 1 in a 1,000 people understands.
The Questions. Any discussion of gold always comes back to certain basic questions: Why is gold money? Why is gold valuable? Why can't money be whatever we say it is? (The last question is usually asked by government officials because they don't know the answers to the first two.) Why does gold give rise to all kinds of controversy not associated with, say, platinum or lead? Why is the stuff an emotional, political statement for those who love it and for those who hate it?
The Answers. Over thousands of years, in billions of transactions by millions of humans, many commodities have been used as money: stones, salt, cattle, and seashells among them. But wherever gold was available, it tended to displace other media of exchange. Like any successful money, gold never needed to be decreed "legal tender" by a government; it was recognized as the most desirable money by common consent because of its unique properties.
Certain materials have proven especially well suited for certain uses, Aluminum is good for airplanes, bricks for construction, paper for books, and gold for money. If bricks were used for airplanes and aluminum for books, the results would be as suboptimal as when paper is used for money.
In fact, the properties required of money were first described by Aristotle in the fourth century BC.
1. It is durable. It
won't evaporate, mildew, rust, crumble, break, or rot. Gold, more than
any other solid element, is chemically inert, This is why foodstuffs,
oil or artwork can't be used as money,
2. It is divisible. One ounce of gold-whether bullion, coin, or dust-is worth exactly 1/100th of one hundred ounces. When a diamond is split, its value may be destroyed. You can't make change for a piece of land.
3. It is convenient. Gold allows its owner physically to carry the wealth of a lifetime with him. Real estate stays where, it is. An equivalent value of copper, lead, zinc, silver, and most other metals would be too heavy.