Gold

Sound money with a 5,000 year history.

What people believe to be “money” today is actually just currency – a medium of exchange.

To be more specific it is actual ‘fiat currency’ so it is pieces of paper used as a medium of exchange that has the Government backing, which gives you the confidence to use it.

These pieces of paper, which we call dollars, are fungible.

Fungibility is an item that can be replaced by an identical item and is mutually interchangeable.

I know that my dollar that I get in New York (if I ever manage to get back out there once COVID calms itself down!) will be recognised and be the same as a dollar someone uses in Singapore.

Money

Gold, however, is a store of value and actual money. A hard asset.

It is the perfect “money” because it holds the following properties:

Medium of exchange – can be used to exchange goods and services

Unit of account – goods can be denominated in that money so it’s easier to compare the price of things against each other

Store of value – it holds its value over time

[The saying goes that 1 oz of gold can buy you a decent suit, whether that be in the Roman times to now and it still holds true! It keeps up with inflation]

Fungible

Durable – hard enough to withstand the test of time

Divisible – it can be broken up into smaller units

Portable – less convenient compared to visa but it can still be transported

Limited supply – this is key.

Finite supply

If something becomes very abundant and the supply exceeds the demand then the price will go down.

If the reverse happens, and there is a shortage but people still want it and there is a demand for it then the price will go up.

Less and less discoveries of gold are being made each year, therefore, less is being released onto the market.

As inflation and money printing continues to erode away at the value of people’s purchasing power, investors are looking for a hedge against inflation.

A “hedge” against something is an expression used when you’re protecting your portfolio against something. 

People choose uncorrelated assets so if one goes down, the other might go up or at least not go down by as much.

For example, the purchasing power of currency goes down by the day as inflation runs hot so people buy gold because that has always been seen as a great “hedge against inflation”.

….until this year.

I will not go into why this is in this post but hopefully you now understand some of the fundamentals around gold and why it holds universal value.

Every single person in this world knows what gold is and recognises it is something valuable.

TO DO

Look up the properties of money to see how the fiat currency in your wallet doesn’t make the cut.