Got Gold?

Gold is money. I know most find gold a “barbarous relic” as Mr. Keynes once put it. But it’s because most people don’t understand what money is. They confuse money with wealth. It is not the same thing. Money is a medium of exchange used in a complex market economy. It is a commodity like any other good, subject to the law of supply and demand. I know shocking isn’t it?

Money has not been invented by governments but by human beings engaged in trade in a market economy. For centuries, gold and silver have presented the best qualities for what is called money: durability, divisibility, etc. For the most part of the 20th century, paper money was tied to gold because somehow we knew we could not trust a politician with a printing press as it destroys the currency. Today we have to realize that we are operating in a 100% pure fiat monetary system since Nixon broke loose of the gold exchange standard in 1971. It made racking up debt in the Western world way easier but we are now slowly realizing that money is not wealth, you can print all you want, you are not going to get richer, ask Zimbabwe. Now too much debt is hard to pay back so you debase your currency (making your creditors very happy!) and you can stimulate what is left of your export sector as a bonus. The problem is that a lot of countries are now engaged in a race to the bottom in a currency war (the old Beg Thy Neighbour policy).

Gold is up and it may well continue to do so until we have evidence that we will stop printing. Governments and central banks do not like gold because they prefer keeping their monopoly on the production of money (who wouldn’t?). Even JP Morgan and Deutsche Bank have reopened vaults in NYC, Singapore and London to store gold for investors. Those vaults had been closed in the 1980s…