"Everything you need to know about gold"
GOLD AND THE MONEY SUPPLY
A recent article (Credit Crunch: The Money Supply Has Shrunk For Eight Months In A Row) by Ryan McMaken of the Mises Institute explained clearly the historical significance of the contraction in the money supply that has occurred over the past eight months.
In this article, I will be talking about the possible effects of this ongoing contraction as they relate to the price of gold.
After decades of concerted effort by governments and central banks, the focus away from gold as money has led to its characterization as an investment, a hedge, insurance, etc. Some still refer to it as a barbarous relic. Are any of these descriptions valid?
DOES DEMAND FOR GOLD SEND ITS PRICE HIGHER?
Gold is original money. As such, it is the measure of value for everything else.
Gold was money before the US dollar and other paper currencies. All paper currencies are substitutes for gold, i.e., real money.
So, how much is money worth? Money is worth what you can buy with it. In my article A Loaf Of Bread, A Gallon Of Gas, An Ounce Of Gold, I compared the cost to purchase bread and gasoline over the past one hundred years using US dollars vs. gold.
The article illustrates the single reason that separates gold from all other forms of money: gold is a store of value; nothing else is.
The first gold coins appeared around 560 B.C. Over time it became a practice to store larger amounts of gold in warehouses. Paper receipts were issued certifying that the gold was on deposit. These receipts were negotiable instruments of trade and commerce which could be signed over to others. They were not actual currency but are a presumed forerunner to our modern checking system.
Gold is original money. It was money before paper receipts were issued. The paper receipts were not money. They were substitutes for real money. Today, all paper currencies are substitutes for real money.