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IPFS News Link • Gold and Silver

Gold Is Money: Everything Else Is Credit

•, by Claudio Grass

Those who know me and are familiar with my ideas are well aware of my position on precious metals and the multiple roles they serve, so I can't blame them for them for being curious whether I still "stick to my guns" in this era of irrationality in the markets and the economy.

Especially for those not versed in monetary history, which is regrettably the vast majority of the population, it is natural to wonder: "If gold is such a great hedge against inflation, why hasn't it skyrocketed now that inflation is finally here?"

Well, there are a couple of reasons for that, some more obvious than others. The interest rate hikes that the Fed spearheaded and repeatedly escalated are the most straightforward explanation. At least that's the answer most mainstream economists and analysts will give you. And it makes sense: If gold pays you no interest for holding it, then why not switch to something that does? This is the mindset of most investors and that weakens demand, which in turn drags the price down. That's how the theory goes anyway. 

If, however, we're willing to examine the question a little more closely, we might begin by scrutinizing its premises. The question takes for granted that gold has underperformed this year. But has it really? If you're saving, getting your paycheck and paying your bills in a currency other than the dollar, you're likely to have a very different view on this issue. In euros, gold is up around 6.6 percent. In yen, it's up 17.9 percent In Egyptian pounds is up over 45 percent. What this clearly shows us, is that perspective matters. 

1 Comments in Response to

Comment by PureTrust
Entered on:

Money is something that can easily be traded by the masses or a subsection thereof, has value or perceived value by the masses, and can't be easily counterfeited. Gold has little practical use for the masses: can't eat it, smoke it, use it for insulation in your house, etc. It DOES have practical use in industry, or could be used as boat anchors (in alloy) by the masses, so it does have a little practical value. To the masses, gold almost only has perceived value, little practical value. Cash has much greater perceived value, so much in fact, that it has practical value. Think about Bitcoin as money.