Is gold real money?

IS GOLD REAL MONEY???

A vast amount of investors look at gold as an investment or a luxury rather than a form of money or currency. It is true that gold does have certain qualities relating to luxury and also industrial uses but the main fundamental advantage with gold is that it is an asset with a non-manipulated supply. Why is this important?

The total global supply of gold around the world can fill up just 2 Olympic sized swimming pools and the new supply of gold that is mined equates to roughly around 1% a year thus making the supply of gold non-vulnerable to outside interest (physically). So in all aspects, gold can be viewed as an asset with a fixed supply that makes it very attractable because it cannot be controlled. This is a very strong fundamental in the market.

Gold was used during the biblical times and was one of the first forms of currency, gold was also a backed-up asset for currencies across the globe. This was called the ‘Gold-standard’ and was part of our monetary system so every unit of account, which is currency (gbp or usd etc), would have always had a quantity of gold to back that currency up. If central banks wished to print money, they would have to purchase gold to back that money up, this gave investors an assurance that currencies were a fixed supply because they was linked to gold.

Gold has always been the real tangible form of money, currencies come and go but gold always stays strong. Even going back thousands of years ago when the gold specie was around, it was a currency that came in the form of a gold coin that could be used to swap for a product like bread or water or medicine etc. Then throughout history ‘cash paper’ basically became the broker for the holder of that coin and the asset, the holder was given cash paper from the bank and the bank held the gold, this gave birth to the global monetary system of paper currency we reside in today.

So gold can be viewed as an investment and it can also be viewed as a form of currency. I myself look at gold as a form of currency, a form of investment and also a form of financial protection (hedging).

If you look at the charts below you will see the difference between gold and the pound sterling that is paper money aka ‘cash’. Over the past 100 years the pound sterling’s buying power against the Dollar (the global reserve currency) has declined around 70% and if you compare that to gold, then over the past 100 years, gold has increased by a whopping 1,400% average. £100 cash sterling in 1910 would still be worth £100 today but with 70% less value due to inflation, yet £100 worth of gold in 1910 would be worth around £1,400 today. This is why I look at gold as an investment and also a form of currency because of its mobility but as mentioned above, gold can be a great way of insuring yourself from an economic downturn and even inflation. As you can see from the chart below, gold soared in price during the financial crisis of 2008 and also during the energy crisis of the 70s thus not only making it an immune asset to an economic downturn, but also an asset to profit from during an economic downturn. This is why some may quote the term, ‘Good old Gold’. I personally believe the everyday average investor and family should hold around 5%-8% of their total wealth in gold, my allocation is around 7.5%.