Why Gold? BullionBuzz | Nick’s Top Six

The comments below are an edited and abridged synopsis of an article by Adrian Day

At a time when many are buying Bitcoin instead of gold, it is worth looking at gold’s role as money over the years.

Why Gold? BullionBuzz Nick's Top Six
Pure gold ore on old wooden rails

Gold has an advantage that Bitcoin does not have, that Bitcoin inherently cannot have, which is its age. Gold has performed its job for thousands of years. We’ll have to wait a bit longer to say that Bitcoin is as good as gold.

In the 4th century, Aristotle wrote his famous treatise on money. Money serves as a medium of exchange, a store of value and a unit of account, he said. It is divisible, fungible, rare, and so on.

Long before the formal gold standard, gold was the backing of the monetary system. Gold has preserved its purchasing power throughout history, during periods of high inflation and sharp deflation when the stock market or the currency collapses. During periods of war and chaos, gold holds its value.

Gold is an inflation hedge. It performed spectacularly during America’s last experience with high inflation in the 1970s. It holds its purchasing power better than fiat currencies during inflation.

During periods of deflation, gold comes into its own. Gold also shines during periods of instability and chaos, whether it is a declining stock market, civil disturbance or war.

Bitcoin is volatile and will continue to be so. It was designed to have no central authority. Volatility is positive if you are a speculator, but not if you are looking for a store of value or a payment system. You want to pay your rent with Bitcoin priced at $64,000 one day, but what about when it is $30,000 two weeks later and your rent is due?

One last attribute of the ideal money: It must be a thing of value in and of itself. Gold is universally recognized and valued. Anywhere in the world, people will recognize gold and desire it. Here, Bitcoin and other cryptocurrencies spectacularly fail. Blockchain is a valuable invention, but ultimately, there is nothing of intrinsic worth there.

Analyst Chen Zhao writes that “crypto was created out of thin air and will disappear like mist.” We can be certain that the same words could not be written about gold.

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