May 13, 2017
Some comments on gold.
An ideal currency “should be absolutely invariable in value.” Precious metals are not perfect but they are “the best with which we are acquainted.” David Ricardo
Gold fits almost perfectly all the criteria required for an item to be used as money. It is instructive to give a list of the requirements for an item to be a good candidate to be used as money:
Durability – It must be able to stand the wear and tear to which money is subjected without degrading over time.
Portability – It must have a high amount of worth relative to its size. In April 2017, a one ounce American Gold Eagle carried in one’s pocket is about the size of a silver dollar and is worth about $1,250.
Divisibility and consistency – It must be able to be broken into smaller parts and still retain the same value. A ¼ ounce gold coin is exactly one-fourth of the value of a one ounce coin. A diamond, for example, when split into four parts will not retain the same value as the original stone. The purity and weight of gold can be precisely measured.
Intrinsic value – It must have some worth in and of itself. Gold is used in various ways and has a value above and beyond its value as money.
Scarcity – The world stocks of gold have consistently risen about 1.5% per year on average with very little fluctuation, giving it an edge over silver in this respect. Silver stocks have shown a somewhat greater tendency to fluctuate.
Difficulty of counterfeiting – Since gold is a basic item, number 79 on the periodic table, it has yet to be duplicated by any technique known to man. Also, its authenticity can be easily discerned through various tests.
Executive Order 6102. In one of the most blatant acts of any president, Franklin D. Roosevelt took the United States off the gold standard and forbid citizens to own gold except in small quantities. Article I Section 8 of the United States Constitution gives Congress the power “To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standards of Weights and Measures;” - by this act alone FDR had committed an impeachable offense and it is clear that he had no constitutional authority whatsoever to write such an order. The standard of measure for money was gold and FDR outdid himself in this brazen display. The reason given for this act was the deflation the country was suffering under. That deflation was caused by the actions of the Federal Reserve, however, not the gold standard. The real reason for this action was to begin the process of removing the last vestiges of control from the money supply so Roosevelt could have unlimited funds to increase government spending. This and subsequent monetary acts would have devastating long term effects for the integrity of the dollar.
The gold standard, while not perfect, is substantially better than using fiat money which enables central governments to spend recklessly with no restraints. This is why the Founding Fathers insisted on a currency backed up by a precious metal, namely gold or silver.
The price of gold has not moved much in the last five years. This is because people are under the illusion that there is no inflation. This illusion is fostered by the phony statistics coming from the federal government. While the inflation we are having is small (about 6 percent per year) it will begin to grow exponentially if nothing is done about the national debt and government spending.
JUST MY OPINION. My personal opinion is that gold is extremely cheap and if you are in a position to own some get it. It should make up about 20% of your net worth. Get physical gold if at all possible and find a safe way to store it. When people realize that we are having an inflation gold’s value could double or triple quickly. Gold is money but unlike paper money it retains its purchasing power.
Lewis Shupe, Founder