"Everything you need to know about gold"
GOLD IS PRICELESS
Over 5000 years of recorded history, gold has proven itself to be real money. Gold’s value is in its use as money. That value is unquestioned.
Whatever arguments are put forth against gold’s use as money are attempts by government to free itself from the restrictions that gold imposes. Gold, when used properly, limits the ability of government to inflate and debase its money.
Since the origin of the Federal Reserve in 1913 the US dollar has lost ninety-nine percent of its purchasing power.
Not coincidentally, but in direct reflection of the dollar’s loss in purchasing power, the price of gold has multiplied one hundred fold from $20.67 oz to $2060 oz as of August 2020.
When it comes to analyzing gold and gold prices there seems to be no limit to the explanations of cause and effect. The number of things presumed to be fundamental, or which are correlated to gold, has grown exponentially as gold receives more attention in the media and from the public.
The state of confusion that exists regarding gold and gold prices is exacerbated by the contradictions and conflicting arguments of almost all concerned parties. This includes investors, traders, analysts, and brokers.
Rather than a desire to understand gold and its singular role, most investors and others are interested in gold only when its price is going up. They buy it and then look for reasons to justify their expectations of even higher prices.
They do look for explanations as to why the price goes down, of course; especially when that happens after they have taken a position on the long side. By then, it is usually too late.
GOLD’S SINGULAR ROLE
There is one overriding fundamental with respect to gold: “GOLD IS REAL MONEY”.
Money has three specific characteristics: 1) medium of exchange; 2) measure of value; 3) store of value. In order for something to be money, it must have all three of these attributes. Otherwise, it is not money.
The US dollar is not money because it does not embody all three of the necessary characteristics. It is an accepted medium of exchange and a measure of value, but it is not a store of value.
Gold is also original money. It was money before the US dollar and all paper currencies, which are merely substitutes for real money; in other words, substitutes for gold.
Lots of things have been used as money during five thousand years of recorded history. Only gold has stood the test of time.
WHAT GOLD IS NOT
The simplest, and most accurate way to say what gold is not, is to state emphatically: “GOLD IS NOTHING ELSE OTHER THAN MONEY’.
Gold is not an investment; nor is it a hedge. Gold is not insurance. Gold is not a safe haven. Gold is not silver’s handsome twin brother. Gold is not a barbarous relic. Gold is not an outdated earlier version of the cryptocurrency craze. Gold as money is not an idea whose time has come and gone.
Gold is nothing other than money. Its use in jewelry is always secondary to its role as money. Gold is money that can be used for adornment, but it is still money, nonetheless. Always.
THE VALUE OF GOLD
The value of gold is in its role and use as money. It is divisible into fractional units for transaction purposes and is a proven store of value.
Gold’s value is constant and unchanging. One ounce of gold today will purchase amounts of goods and services roughly equivalent to what it could have bought fifty, one hundred, or one thousand years ago.
The reason the value of gold does not change is because gold, itself, is unchangeable.
WHY DOES THE PRICE OF GOLD CHANGE?
It is logical and reasonable to ask “If gold is unchangeable, and its value is constant, then why does its price change?
The changing price of gold is attributable to one thing only: changes in the value of the US dollar.
Over the past century, the US dollar has lost between ninety-eight and ninety-nine percent of its purchasing power. Correspondingly, the price of gold has increased by a multiple of fifty ($1050 per ounce) to one hundred ($2060 per ounce) times its original fixed and convertible price of $20.67 per ounce.
The chart (source) below shows a one hundred-year history of rising gold prices…
Over that same one hundred years, what you can buy with an ounce of gold remains stable, or better. (see my article A Loaf Of Bread, A Gallon Of Gas, An Ounce Of Gold)
SUMMARY
Gold’s singular role is its use as money. Gold is real money because it carries the qualifying characteristics of money, including that of a store of value.
The value of gold is directly attributable to its use as money. Gold’s value is constant and unchanging. The higher price of gold over time is a reflection of the ongoing loss in purchasing power of the US dollar.
Gold’s value is not determined by world events, political turmoil, or industrial demand. Gold is not correlated to interest rates or anything else. Gold is not a hedge or a safe haven; nor is it an investment.
Gold is real money and nothing else.
Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED!
GOLD AND US DOLLAR HEGEMONY
The US dollar is the world’s reserve currency. That isn’t likely to change anytime soon.
All currencies are substitutes for real money, i.e. gold. And because all governments inflate and destroy their own currencies, any potential alternatives to the US dollar are as bad or worse.
That doesn’t stop the dollar bashing, of course. In a general long-term sense, the condemnation is well-deserved. After all, the US dollar, under the care and watch keeping of the Federal Reserve Bank of the United States, has lost more than ninety-eight percent of its purchasing power.
DOES DEMAND FOR GOLD SEND ITS PRICE HIGHER?
Gold is original money. As such, it is the measure of value for everything else.
Gold was money before the US dollar and other paper currencies. All paper currencies are substitutes for gold, i.e., real money.
So, how much is money worth? Money is worth what you can buy with it. In my article A Loaf Of Bread, A Gallon Of Gas, An Ounce Of Gold, I compared the cost to purchase bread and gasoline over the past one hundred years using US dollars vs. gold.
The article illustrates the single reason that separates gold from all other forms of money: gold is a store of value; nothing else is.
GOLD – BULLISH OR BEARISH?
What does it mean to say that one is “bullish” on gold? Or “bearish”? Or, more simply, what is a bull or a bear?
“A bull is an investor who thinks the market, a specific security or an industry is poised to rise. Investors who adopt a bull approach purchase securities under the assumption that they can sell them later at a higher price. Bulls are optimistic investors who are attempting to profit from the upward movement of stocks, with certain strategies suited to that theory. …James Chen, Investopedia
According to the definition, then, being bullish on gold is an indication that an investor can optimistically purchase gold and expect to sell it later at a higher price for a profit.
The gold price is not about gold. In fact, it tells us nothing about gold.
So why are people so obsessed with the price of gold? In most cases, it is because people likely view gold as an investment opportunity. “How much can I make and how quickly?”
However, the question which continues to plague gold investors and others is “Why didn’t gold respond the way we expected?”
The answer is found in the term unrealistic expectations.
When gold is characterized as an investment, the incorrect assumption leads to unexpected results regardless of the logic. If the basic premise is incorrect, even the best, most technically perfect logic will not lead to results that are consistent.
Here are some examples of inconsistencies when viewed through the lens of faulty logic based on incorrect assumptions…
Expecting higher gold prices? Read on…
From Wikipedia:
“In English, the phrase fly in the ointment is an idiomatic expression for a drawback, especially one that was not at first apparent, e.g.
We had a cookstove, beans, and plates; the fly in the ointment was the lack of a can opener.”
For four centuries, ‘a fly in the ointment’ has meant a small defect that spoils something valuable or is a source of annoyance. The modern version thus suggests that something unpleasant may come or has come to light in a proposition or condition that is almost too pleasing; that there is something wrong hidden, unexpected somewhere.”
In general, with gold prices currently at $1500-1600 per ounce, the expectation among participants in the gold trade today is for much higher gold prices going forward. And most of them, I think, seem to believe it will happen sooner, rather than later; and quickly, too.
Their enthusiasm rests on two assumptions: 1) That the new unlimited amounts of cheap credit made available by the Federal Reserve is hugely inflationary. 2) That the effects of the inflationary avalanche will destroy the US dollar, thus resulting in higher gold prices.
On the surface, both statements are logical and rooted in correct fundaments. But there is a fly in the ointment.
Is $1500 a reasonable price for gold? Some of the more ardent gold “bulls” might say no. A price of $2000 per ounce should sound better to them. That particular number is likely more popular because gold’s price didn’t quite get there eight years ago, stopping just shy of $1900 per ounce.
Similar behavior occurred after 1980, when gold’s price assent was stopped at $850. At that time, $1000 became the price projection of choice.
In both cases, the expectations for gold were likely born out of desire, rather than fundamentals.
So, how can we know what is a fair and accurate price for gold today – right now?
When gold’s price reached $850 per ounce in January 1980, it seemed as if nothing would stop the runaway train that was headed straight for $1000 per ounce. But it was stopped, and began sliding downhill quickly.
By June 1982, two and one-half years later, gold’s price had declined by sixty-five percent. At close to $300 per ounce, the price of gold seemed farther away from the $1000 mark than ever before.