What Most People Don't Know About Gold
By
Doug Casey
International Speculator
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.
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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.