James Turk Blog

Finance

As a starting place, his article provides us with material to work with. His bias is obviously anti-gold. But his concern, the gold price is telling him something important is evident from his headline, and he then enters into a mea culpa as to the reasons gold shouldn’t be considered a standard investment. Stevenson trots out the usual anti-gold-bug stuff, claiming gold being only of interest to the kind of individuals who stockpile tinned goods and Kalashnikovs. But he also lists some of the alleged disadvantages of gold, commonly believed in the investment management industry. Before doing this, we should set one thing straight.

What he didn’t point out is the normal belief in investment management circles that silver is no more money. We shall start with this matter, given its overriding importance, before handling Stevenson’s other presumptions. The first rung on the ladder towards understanding the role of gold is to discover it is money. It still competes with today’s fiat currencies as money and predates them by many millennia. Within the millennia there were many other forms of money tried, and from silver apart, they have always failed. The gradual emergence of unbacked fiat currencies, particularly from the 1920s onwards, is the only monetary challenge to gold’s long history as money that has yet to fail.

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With today’s state-issued currencies backed by anything apart from public reliability in their issuers’ standing up, the US money has loosely changed gold as the main currency against which the rest of the currencies are measured. This was by design: since 1971 the united states Treasury has embarked on the campaign to deny gold’s role as money, promoting the buck as the reserve currency instead.

In the past, when a state-issued money was convertible into yellow metal freely, its currency circulated as a platinum alternative. Today, no money is convertible into gold, so platinum does not circulate as money even indirectly. By insisting its state-issued currency is utilized for tax payments, and is the basis for everyone’s accounting therefore, a nationwide authority ensures it is the circulating medium. But another important function of money is as a store of value, preserving it for the lapse of time taken between it being earned and finally spent, and in this function state-issued currency fails. The continual loss of purchasing power in fiat currencies since gold backing was removed has rendered them unsuitable as a cost-savings medium.

Only gold retains sound-money qualities and continues to be valued therefore in several populous nations. Actually, the naysayers who state gold is no more money are only a very small proportion of the world’s population, given everyone as a whole in the advanced countries have no definite view on the matter.

It is a common error to assume neo-Keynesian economists speak for entire populations. For common people, gold can be an important refuge progressively, given the chance of the acceleration in financial inflation as the global world tips into a downturn. With government spending already out of control, governments are calming budget self-discipline further while appealing greater spending even. Consequently, the monetary quality that will be more valued is the capability to preserve value and it is upon this quality that gold markets are starting to place a premium.