Money and Currency are similar, but they are not the same, we are led to believe they are the same – for a reason.
Money and Currency, both have several shared properties:
- Medium of Exchange
- A unit of account
- Fungible (Interchangeable)
Only money is a store of value.
What this means is that real (intrinsic) money over time maintains it’s value, whereas fiat currencies lose value, eventually returning to their true value which is zero, after all its only a piece of paper, and how much is paper actually worth?
As an example of a fiat currency losing its value over time, consider the US Federal Reserve $1 banknote, which has been printed by the FED since its inception 100 years ago in 1913.
Now compare this with the performance of gold (in US$) over the last 40 years:
From this and the previous graph it is very clear to see that over time a fiat currency will lose value, whereas a commodity like gold will either maintain or increase its relative value. By some estimates gold may be soon in a postion where its value may increase vastly, possibly by 30 or even 50 times (3,000 to 5,000%) to compensate for the collapse of fiat currencies.
The recent dip in the price of gold is more down to speculation in what is referred to as “paper gold” than in a drop of the value of the metal. This is best described as a claim for gold, as opposed to actual holdings of gold as a physical commodity. It is a form of price manipulation, which can only be performed on claims for gold, not physical gold. This practice has led to massive leveraging, whereby there are more than 100 claims for each unit of gold. If those claims are ever demanded the bullion owners cannot possibly deliver.
We have mentioned elsewhere on this site a belief that Gold should be re-constituted as the Worlds reserve currency, replacing the fiat (debt) based US dollar, along with other precious metals such as Silver, Platinum, Palladium, Rhodium, Indium, Ruthenium and to a lesser extent any metal, such as Iron, Tin, Copper, Zinc, Aluminium, Nickel and many others including the Rare Earths. All metals are traded on the commodities markets, and at any given time, have what is known as a SPOT price, below is a link to a website that tracks the SPOT price of all metals:
The main reasons for suggesting GOLD as the Worlds Reserve currency is it relative scarcity, and the fact that mankind throughout history has always coveted gold above any other metal. However, from an economic perspective the main attraction of gold is the fact that it is almost inflation proof, even over the span of many generations. As pointed out byG. Edward Griffin, an ounce of gold in Roman times (circa 2,000 years ago), would buy a quality toga, shoes and a good belt, today an ounce of gold (about £765.00) would buy a good quality suit, a fine pair of shoes and a good belt, it has been almost unaffected by inflation. Compare and contrast that with something like a house in the Southeast of England, back in the 1960′s a 3-bedroom semi might have cost a few thousand pounds, but may now cost between 1/4 and 1/2 a million pounds or more, all in just 50 years, and ALL due to inflation. As explained before, inflation over time is just a reduction of buying power. Ignoring the fact we operate on fiat currency, what was worth a pound in the 1970′s (such as a £1 coin) is now worth in real terms about 6 pence, a 94% reduction in buying power in just 40 years.
Find gold price charts provided by goldprice.org