Thursday, July 14, 2011

Is Gold Money?

Gold is an element on the periodic table with the symbol Au, from the latin word aurum. It has 79 Protons and electrons and a density of 19.32 g/cm3. It was discovered around 3000BC.

So if it is just one of the elements, what is all the fuss? Gold engenders much debate, often heated. Why is no. 79 treated so?

The argument partly revolves around the question as to whether it is money or not.

Gold is divisible, portable, durable and, in its purist form, consistent no matter where you go. You could conceivably go to market in India and use a .999 pure 1 gram bar to purchase goods as well as using that same bar in New Zealand to purchase goods at a market. It is recognized.

Gold's physical properties have made it a reliable medium of exchange for thousands of years. Its intrinsic qualities make it very useful as money. It cannot be easily counterfeited (almost impossible).

Technically, though it is not money. In the sense that our laws do not recognize it as a medium of exchange. In this environment gold is an asset.

However, just to confuse, it is still possible to be used as money even in this situation. Only not officially. Some people ask the question, "What will you do with your gold, who will you sell it to"? Those who understand gold, or have memories of their monetary history without it, readily see value in the metal as a medium of exchange and as a store of wealth. They are more than happy to exchange paper for gold.

The flight to safety that we are currently experiencing (gold up another $13.00 last night to $1584) doesn't mean that people see it as money. They primarily see it as a great way to shift their devaluing currencies to the best asset around.

Note that Central Banks aren't selling their gold. They definitely see it as the best asset class.

Yesterday, Ben Bernanke hinted that another round of quantitative easing (no. 3) will be necessary if the US economy continues to falter. QE3 is a given. The Federal Reserve has no other option if it wants to maintain rising prices and a modicum of rising employment. Figures suggest another $1,000,000,000,000 ($1 trillion) minimum would be required.. On this news and news of the problems in Europe, gold has increased $100 per ounce in less than two weeks.

Element no. 79 is acting as the asset of choice right now. May be it will be legal tender again.

On both counts, owning it in this environment is the best option.

Gold in New Zealand dollars: $1865.23 per oz
Previous all time high: $1955.10 per oz

Silver in New Zealand dollars: $45.08 per oz
Previous all time high: $48.58
per oz


The Anglo-Far East Company
The Original Private Bullion Custodian
Your reference: an-001

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