Gold Money


Gold

With the softening of gold prices since early this year, it could trigger an increase of sales among gold products in the market. This is because people are more susceptible to purchase the precious metals as they may find the prices more alluring during times like that. Even if gold prices were to drop, they will increase gradually and unlikely to cause havoc selling.

The price of gold per ounce now hovers at US$1,630, compared to US$1,740 in January 2012, and US$1,800 in November 2011.

Since January 2012, due to the rise in demand for gold products, Public Gold has been producing about RM20mil worth of gold dinars, gold coins, and gold commemorative items, compared to a monthly average of RM12mil, for 2011.

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Gold

Lately, a lot of buzz, cries and shouting out there that the world should go back to using gold as money.  The purpose of this article is to show what will actually happen to us, to our ‘gold money’ if gold is actually being used as money, to replace our existing fiat paper standard.  Let’s assume that we started to use gold as our money beginning in 1996, which is exactly 15 years ago.

First a little bit of history.  Gold was widely used before but was removed by our grandfathers.  Perhaps today’s generation forgot as to why gold was removed.  Gold was found to be inherently unstable, difficult to be used as money.  So it was removed and replaced with a better kind of money, our existing paper money.  Paper money was so successful, it was the most successful kind of money ever.  It is cheap, easy and almost counterfeit proof.  Gold money possesses none of those ideal characteristics.

Now on to gold.  In order to get the true value of gold, independent from the changes in paper money’s value due to inflation, we have to filter out the effects of inflation on gold.  Once removed, the mask that hides the true value of gold will disappear, revealing the actual price of gold, its true price, due to its own supply and demand.  The graph is shown below.

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