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Nowadays, many people are worried about their finances. Prices are shooting through the roof. The stock market is crashing and a world recession is looming. Banks still pay an interest rate of less than 4% while unofficial inflation exceeds 10%. How then are we to protect our money?
What is money? Traditionally, it was gold. Today, people have been conditioned to believe that paper currency issued by the Central Banks is money. It is part of the Rat Race System. What is the Function of Money:
1. Store of value
2. Medium of exchange
3. Unit of account
4. Standard of deferred payment
Paper money is very useful as it is compact, easily transportable and can be sent electronically. Then you can do fancy stuff with it like currency hedging, bonds, derivatives, etc.
Central Banks love it because the cost to them is only paper and ink and they can get the Rats to work for those pieces of paper – a form of modern slavery. But the Bankers were greedy and wanted to make the Rats work more for less paper. The way to do it is to suppress the price of what has always been accepted as real money – gold!
Here is a history of the evolution of gold in finance from 1914 to date.
This is a summary: http://gata.org/node/4843
( Here is the full article- The relevance and importance of Gold in the World Monetary System.)
The summary is good enough for our purpose. Basically, the analysis states that we are entering an unstable phase which will lead to deflation due to excessive debt of the US. Why is gold important?
1. Most reliable and long lasting money. 2. Universally accepted: Gold is the same everywhere, 3. Durability: It lasts forever, 4. Cannot be printed or manufactured: It can not be created out of thin air. Holding gold instead of paper money enables the people to impose a certain level of discipline on the Central Bank. 5. Inflation: It is immune to inflation. Its price rises along with inflation.
Gold characteristics which makes it very attractive for use as money:
1. Inert. It can appear as a pure metal in its natural state, and easily discovered by early civilizations.
2. Rare. 0.005 parts per million in the Earth’s crust. 3. Very dense, 19.3 metric tonne/m3, 20 times as dense as water and 2 ½ more dense than steel. 4. Compact. Useful form of monetary exchange
5. Attractive. Bright yellow colour.
Because of its popularity, it became a much-sought after metal and was highly valued. Early civilizations adopted it as a form of money. And this has been the practice for more than 3000 years.
Traditionally, Central Banks backed their currency notes against gold. The USD was initially pegged to gold at USD 35/oz. The US Government could not sustain this rate due to its trade deficit with other countries and foreign governments kept on exchanging the USD for gold. Eventually on 14 Aug 1971, rather than exhausting all the gold stock in the US Reserve, President Nixon broke the peg. Now the USD became a floating currency relative to the other major currencies – Sterling, Euro, Franc, Kroner, Yen, etc.
But the emotional linkage with gold is still there. People intuitively perceived the value of a paper currency through the price of gold – the higher the price, the weaker the currency. Since the Central Banks can print money but cannot “print” gold, they had an incentive to promote paper money as the cost of production was so low and they could create lots of money this way. Using paper money without a gold backing removed a restraining factor on the Central Bankers’ behaviour.
Although recognized, gold is not perceived the same way everywhere. We all view it through the unique lenses of our own home currencies. Most of us are born, reared, and socialized in a single country. By the time we reach investment age, our minds are hardwired to judge value exclusively relative to our particular country’s currency.
To conclude, gold is important as a measure of the worth of our currency - the higher the gold price, the lower the purchasing value of our currency. Effectively, you can say that gold is the canary in the mine with respect to the economic policies of the Central Banks and the government.
Here are some links to follow if you wish to explore more. Read Here
FUNDAMENTAL PROPERTIES FAQs - QUALITIES & ABUNDANCE
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http://www.galmarley.com/framesets/fs_is_gold_money_faqs.htm
Gold : prices, facts, figures & research
SEVENTEEN REASONS TO OWN GOLD Alarming Financial Deterioration in the US Global currency Debasement Investment Demand for Gold is Accelerating Negative Real Interest Rates in Reserve Currency (USD) US Federal Reserve Policies in the Event of Increased Deflationary Pressures Ongoing Proliferation of Financial Derivatives Existence of a Huge and Growing Gap Between Mine Supply and Traditional Demand Mine Supply will Likely Decline in the Next Three Years Large Short Positions The Central Banks are Near an Inflection Point where they are unable to provide more gold to the market. Increasing Likelihood of Central Bank Gold Purchases Large Increases in Outstanding Gold Derivatives despite major reduction in Producer Hedging Gold is very cheap compared to oil price The China Factor Gold as Money Continues to Gain Credence
Rising Geopolitical Tensions Limited Size of Total Gold Market provides tremendous leverage (total gold in existence <130,000 mt)
How to buy Gold: Here are a few possible places to buy gold. This is not a recommendation so please do your own due diligence Goldmoney Maybank physical & investment a/c Perth Mint Poh Kong Bunga Raya (goldsmith shop) Public Bank Gold investment a/c Public Gold (Penang-based company which may not be related to Public Bank) UOB Bhd UOB Singapore For more information: Visit our Gold & Precious Metals Forum for more discussions on gold
- PY Wong
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