There are a few companies out there who advertise continuously on television trying to get you to purchase their product: GOLD. Their ads are slick and somewhat compelling as they suggest that the world’s economies are in such a stitch that when the financial collapse occurs – as they say it most certainly will, your only salvation will lie in having your safe chock full of Gold.
Gold is a commodity just as Silver, wheat, corn, salt, oil, stocks, bonds and pork bellies. The value of any commodity is subject to and determined by time constraining perceptions. These continuously changing perceptions are often irrational; nonetheless, the markets, which have been built to accommodate their trade, are quite efficient. The value of any given commodity fluctuates, i.e., it goes up, down and up. This behavior is guaranteed – the value at any given time is not nor can it be guaranteed or predicted with any human invention, mathematics or any degree of accuracy.
The use of Gold as a fungible specie has been a practice for thousands of years. It possessed a perceived value as measured against other bartered commodities. The use of Gold, over the millennia, has been supported by its durability and ultimate universality. A given gold coin was deemed to be worth a certain number of wheat bushels, corn, pelts, weapons or other items needed by men or markets for self preservation and overall well-being.
Up until the mid-thirties (20th Century), our currency (known as Gold Certificates), and for that matter most of the world’s currencies at the time, were “full-bodied” currencies, i.e., the currency’s face value was equivalent to a specified measure of a precious metal such as Gold or Silver. The world-wide depression of the thirties brought to the surface a hard lesson regarding the practical use of “full-bodied” money. It limits monetary growth. If an economy should ever hope to grow, its money must be flexible enough to grow as well; therefore, money should not be backed by Gold or any precious metal. One of Franklin Roosevelt’s first Presidential orders was to eliminate the practice of having “full-bodied” money. Doing so, helped lift us from the Depression.
Ten years later, in July, 1944, in the little New Hampshire town of Bretton Woods, 44 Allied countries gathered together and agreed to set the price of Gold at $35 per ounce. Nations could, thence forth, convert their accumulated Dollars from trade into Gold. This provided much needed stability for the world’s monetary health. This came to an end 27 years later in August of 1971 when the Nixon Administration closed the “Gold Window”; thereby, ending the “Gold Standard” for International trade. Overnight, the International value of the U.S. Dollar halved. The price of Gold became a matter of supply and demand; rather than a government decree.
Ten years ago (April, 2003), the price of Gold was $326. For those folks with acute prescience, buying an ounce of Gold in ’03 would have accreted to $823 in ’08; and, $1,899 in 2011. Unfortunately, as with many commodities, a year later, the price of Gold dropped over $100 to $1,791 and six months later, an ounce of Gold dropped another $214 to $1,577 (March, 2013). So far, 2013 has seen the price of Gold drop by 6.2%.
Gold or for that matter any commodity, does not earn interest. Without question, your store of gold would have accreted in value by 384% from April, 2003 to March of 2013. The question then comes down to this: when will you open your safe, pull out a gold coin and go shopping at Wal*Mart? And will they accept the Gold coin or will they insist on you paying with a Treasury note?