Gold

What is happening with gold? Why has it doubled in value over the past two years, from $2,000/oz to over $4,000/oz, more than triple its value from 10 years ago?

For that matter, why does gold have any value? Yes, it’s pretty. Yes, it has some industrial uses. But 99% of the gold that has been mined from the ground sits as gold bars in vaults, back underground.

The simple answer is that gold is money, and everything else you think is money is just a promise to pay real money. I summarized the hierarchy of money back in January. The following video explains this idea in more detail.

In summary, before WWI international trade settled in gold. Post WWII the gold standard was replaced by the US Dollar standard (a.k.a. Bretton Woods), where paper money was treated as real. That system ended in 1973, but momentum carried the world forward another half century or so.

China and Russia central bankers decided a few years ago to swap out their US Dollar reserves for gold and other countries have followed suit. That has created a new demand for gold that has raised its value to all-time highs.

The question now is whether that trend will continue or is it just a central banking fad? Given the dysfunction in Washington DC, I can’t envision any central banker anywhere betting on the US Dollar anytime soon.

Gold was money for thousands of years before the U.S. was founded. Gold was money before the Romans too. And the Greeks. Gold was the first money of the first civilizations and likely to still be money thousands of years from now.

That is why gold has value. Because it had value yesterday, and yesterday’s yesterday, back to the yesterday’s of the ancient Sumerians, Egyptians, Indus Valley, and Chinese.

If you are convinced and want to buy gold, the easiest way is to buy an ETF that is backed by gold. GLD in the U.S. ABSA NewGold in many countries in Africa.