J.P. Morgan is famous for testifying before Congress saying “money is gold, and nothing else.” But why is gold so uniquely suited to be money? Here are our top six reasons why we think gold is the best money, and why dollars and bitcoin don’t come close.
1. Gold’s Natural Properties
Gold’s physical properties make it especially conducive to being money. It’s highly durable, divisible, malleable, fungible, portable, and lest we forget, physical. Let’s take these in turn:
Durable: Gold is extremely durable. In fact, unlike many other commodities which rot or spoil, gold is virtually indestructible! Which is why virtually all the gold ever mined in human history is still with us in some form today.
Divisible: You can divide gold into incredibly small units (Valaurum, who leases gold from Monetary Metals, produces a currency unit containing 0.001 oz gold). Gold can be divided without material loss of value. The same cannot be said of pearls, diamonds, and other valuables.
Fungible: Gold is fungible and consistent. An underappreciated characteristic, fungibility is critical to enabling Monetary Metals to offer interest on gold, paid in gold. It’s precisely because of gold’s fungibility that we can lease gold in myriad different forms to companies who need to use it as inventory or work-in-progress. From finished bullion products to the blanks that are used in mints, to jewelry, to doré and mine concentrate and everything in between – in each case, we can be sure of how much gold is in each stage of the chain.
Portability: Due to its high value to weight ratio, you can transport a lot of gold value, without using a lot of space, at minimal cost. 1,000 oz in a backpack? No problem. That’s about $2 million of value you’d be holding.
Physical: Unlikely to be listed as an important benefit until the advent of bitcoin, the fact that gold is a physical, tangible commodity that holds value independent of electricity or other dependencies like the internet, is important.
2. Supply is Regulated by the Market
Unlike dollars, and unlike Bitcoin, the supply of gold is regulated by free market forces. If the market is desirous to own more gold, the price of gold will rise. A rising price of gold is a signal to producers to start producing more, in anticipation of booking additional profits at the higher price. If the market is less desirous to own gold, the price will fall, and the signal has the opposite effect, reducing the amount of new gold brought to market.
In an unadulterated gold standard system, the exact same mechanism – the free market – exists for increasing or decreasing the supply of gold. No central bank, governing body, or artificially capped supply are necessary. And during the historical period when gold was money and this mechanism was more or less present, it was a remarkably stable and productive period.
We said unlike dollars and unlike bitcoin. Let’s flesh that out.
The supply of dollars is regulated by central planners, not by the decisions of free individuals acting in a free society. The Federal Reserve “divines” how many dollars are necessary, and the rate of interest that should be offered on them. If that doesn’t immediately strike you as mind numbingly wrong, then we recommend you read (or watch) our body of research and articles to understand why it is. And unless there’s any doubt, they’ve enacted a policy that deliberately seeks to weaken the dollar every year.
Ironically, Bitcoin is similar. It wasn’t a central bank, but a central architect by the name of Satoshi who decided the correct supply of Bitcoin. Until eternity, 21 million is the supply. And there is no mechanism to remedy this if it turns out to be wrong.
Proponents of Bitcoin will retort that the price is sufficient for resolving the ebb and flow of supply and demand. Not so fast. A process for altering supply helps to smooth out price swings that, if too volatile, are unsuitable to being used as a money standard. Too much volatility in the price of money doesn’t serve money holders. Stability, does.
Read more of our unique analysis on Bitcoin in our Gold Outlook Report 2022
3. Superior Marketability
In every market for goods, there is a bid price and an ask price.. The spread between them represents the loss to get into and out of that commodity. The wider this spread, the more “friction” to trade using the good. The narrower it is, the more liquid or marketable the good. Gold has the narrowest bid-ask spread of any commodity. Period.
4. Final Payment of Debts
Unlike our current US dollar, which is an irredeemable currency, gold can be used to close debt loops and does not contribute to exponentially increasing debt burdens like the ever so printable dollar.
5. Safety Valve for the People
Interest rates, which are currently centrally planned by the Federal Reserve, cannot be imposed on a gold money standard since owners can ultimately refuse to lend their gold. This puts a floor on the interest rate. A floor that is conspicuously absent in the global irredeemable currency system.
6. Price Stability
Finally, gold’s price stability means it can be lent to fund businesses, like what Monetary Metals is doing. Imagine having to pay a Bitcoin loan when the price has “gone to the moon!”
These are some of the reasons why gold is uniquely suited for the task of being money today, regardless of what happened in the past.
Did we leave something out? Let us know in the comment section! And for all the Bitcoiners out there, tell us why you believe Bitcoin is better. We can’t wait to hear your polite, respectful, insightful commentary on how to bring back sound money to our unsound world.
Additional Resources for Earning Interest on Gold
If you’d like to learn more about how to earn interest on gold with Monetary Metals, check out the following resources:
In this paper we look at how conventional gold holdings stack up to Monetary Metals Investments, which offer a Yield on Gold, Paid in Gold®. We compare retail coins, vault storage, the popular ETF – GLD, and mining stocks against Monetary Metals’ True Gold Leases.
Adding gold to a diversified portfolio of assets reduces volatility and increases returns. But how much and what about the ongoing costs? What changes when gold pays a yield? This paper answers those questions using data going back to 1972.