Gold: The Timeless Custodian of Value and Ultimate Form of Payment
We delve into the unique role gold plays in the global economy, examining its enduring historical significance as a medium of exchange and its unwavering capacity to retain purchasing power across the ages.
Gold: Money of the Highest Standard and Historical Liquidity
Throughout almost the entire history of human civilization, gold has played a fundamental role as money. This precious metal, being the most liquid of all physical commodities, still retains its significance today, acting as the 'highest standard' form of money.
Its unique properties have always set it apart from other assets, making it an integral part of economic systems worldwide. It is this stability and universality that have always drawn attention to gold as a reliable means of payment and store of value.
Expert Opinion: The Ultimate Form of Payment
Alan Greenspan, former Chairman of the Federal Reserve System of the USA, eloquently spoke about the significance of gold. He called gold 'the ultimate form of payment in the world'.
These important words were uttered after the US dollar lost its fixed peg to gold, which was previously $35 per troy ounce, by decree of US President R. Nixon in 1971.
Consequences of Detaching the Dollar from Gold
The abolition of the gold standard for the US dollar gave monetary authorities the opportunity to begin large-scale monetary and credit issuance, which effectively meant 'printing money' in significant volumes.
This process led to a tenfold increase in prices for almost all goods and services. From 1971 to the present, inflation has affected not only the US but has also spread worldwide.
A History Lesson: The Purchasing Power of Gold
Despite the global devaluation of paper money, the purchasing power of gold has barely changed, and in some cases has even increased. This fact clearly demonstrates its resilience.
For example, one ounce of gold, which is approximately 31.1 grams, could be exchanged for roughly the same amount of material goods in 1971, in 1871, as it can today. This indicates that it is paper money that has depreciated, not gold.
- Long-term preservation of savings in 'paper money' is impossible.
- Reliable preservation of savings is only possible in 'real assets'.
- Gold is the most liquid of all 'real assets'.
What is Liquidity?
The concept of 'liquidity' is crucial when evaluating assets. It determines how quickly and efficiently an asset can be converted into cash.
| Term | Definition |
| Liquidity | The ability to sell something or convert it into (paper) money as quickly as possible and without loss of value. |