By Jeff Clark, Casey Research
Have you ever had any doubts about gold? Does it sometimes feel like it should be performing better? Are you concerned about its volatility? Do you worry about how it might perform in the future? Have you ever wondered about its true purchasing power? Maybe you’re nervous about a big drop in price again? I decided to go directly to the source to address these concerns: Gold himself. He put his arm around me and asked me to tell you a few things…
I hear that you’ve had some worries about me. I understand. Your world is a very uncertain place right now. And when it comes to money, it looks as though your leaders don’t understand some basic monetary principles, making things even more unsettling.
But I want you to know that the problems you’re experiencing are actually nothing new. I’ve seen these monetary, fiscal, and economic difficulties many times before. And I can tell you this: you’re safe with me. That’s a bold proclamation, but I’ve provided monetary protection numerous times throughout history – too many to count, in fact. I’ve served all kinds of people over the centuries, from kings and counts to serfs and servants.
To put your mind at ease, let’s review my core characteristics, along with some history, to show how I can protect you against the monetary danger that’s likely to worsen in your near future. We’ll also take a look at your peculiar set of circumstances to see how I can be of service. By the time we’re done, I think you’ll feel much better about my ability to help your portfolio withstand whatever is thrown its way.
Enduring Characteristics
Let’s start with the basics. I have some characteristics that no other matter on Earth has…
I cannot be:
- Printed (ask a miner how long it takes to find me and dig me up)
- Counterfeited (you can try, but a scale will catch it every time)
- Inflated (I can’t be reproduced)
I cannot be destroyed by;
- Fire (it takes heat at least 1945.4° F. to melt me)
- Water (I don’t rust or tarnish)
- Time (my coins remain recognizable after a thousand years)
I don’t need:
- Feeding (like cattle)
- Fertilizer (like corn)
- Maintenance (like printing presses)
I have no:
- Time limit (most metal is still in existence)
- Counterparty risk (remember MF Global?)
- Shelf life (I never expire)
As a metal, I am uniquely:
- Malleable (I spread without cracking)
- Ductile (I stretch without breaking)
- Beautiful (just ask an Indian bride)
As money, I am:
- Liquid (easily convertible to cash)
- Portable (you can conveniently hold $50,000 in one hand)
- Divisible (you can use me in tiny fractions)
- Consistent (I am the same in any quantity, at any place)
- Private (no one has to know you own me)
I am internationally accepted, last for thousands of years, and probably most important, you can’t make any more of me.
“Gold Is Money”
You’ve heard that statement before – but do you know what it really means? Money is a medium of exchange and a store of value. Almost anything can be used as money, but obviously some things work better than others. It’s hard to exchange things people don’t want and other things don’t store value well. Over thousands of years, I have emerged as the best form of money (along with silver).
The paper dollars in your wallet are technically a currency, not real money. In other words, they are a government substitute for money. The man you call Aristotle best defined the primary reasons why I’m considered money: a good form of money must be durable, divisible, consistent, convenient, and have value in and of itself.
- It must be durable because you can’t have your money disintegrating in your pocket or bank. That’s why you don’t use wheat; it can rot or be eaten by insects.
- It must be divisible, which is why you don’t use diamonds or artwork; they can’t be split into pieces without destroying the value of the whole.
- The lack of consistency is why you can’t use real estate. One piece is always different from another piece.
- It must be convenient, which is why you don’t use other metals like lead. The coins would have to be too big to handle easily to be of sufficient value.
- It must have value in and of itself. This is why you shouldn’t use paper as money.
- And one more thing: I can’t be created out of thin air. Not even the kings and emperors who clipped and diluted gold coins used paper as money. Aristotle didn’t include this in his list, but it’s vital.
So you see, there’s no superstition here. It’s simply common sense. I am particularly good for use as money, just as aluminum is good for making aircraft, steel is good for the structures of buildings, uranium is good for fueling nuclear power plants, and paper is good for making books. If you try to make airplanes out of lead or money out of paper, you’re in for a crash.
And by the way, don’t fret about those who say I’m not as good an asset as an income-producing vehicle. They misunderstand my role. I’m not trying to be a stock, for example. My function is as money and a store of value, so the proper comparison is to your dollars, or what you call Treasury Bills (of similar nominal value). And here is where I excel and serve my purpose: since 1913, the US dollar has lost 96% of its purchasing power. I have lost none.
Remember, I am the only financial asset that is not simultaneously someone else’s liability. I don’t require the backing of any bank or government.
