Gold is not a commodity it is a currency – and the devaluation of paper money by money printing is making it more and more attractive.
The metal was desirable long before the concept of money was ever invented – and it has been used as a medium of exchange for thousands of years. (The first gold coins were minted in Lydia, in modern-day Turkey, in 610 BC.)
The money in your pocket is effectively worthless. The government declares it as legal tender and will accept taxation payments with this bill of exchange but the £5 note is no longer backed by anything. When push comes to shove, a £5 note is just a piece of paper and ink with no intrinsic value at all. It certainly isn’t worth £5.
Fiat currencies are not backed by gold. When most currencies were on the gold standard, a unit of currency could be exchanged by central banks for a fixed weight of gold. That way, paper money could be used instead of using gold or silver coins.
The world’s monetary system used to be backed by gold – until Richard Nixon scrapped the dollar’s convertibility into gold 40 years ago. This made the dollar the defacto reserve currency, but successive administrations have mismanaged government policy and the US economy is now drowning in a sea of debt.
Because of the policy responses to the current crisis, the world’s reserve currency is becoming less desirable – and there’s no sign of the US sorting this problem out. Friday’s S&P downgrade of the US’s credit rating emphasised this.
