LakeShoreTrading.co.za – Below is an excerpt from a recent article by David Levenstein, a leading expert on investing in precious metals. It is one of the best descriptions of the significance of gold. Enjoy.
“There is much confusion today over the role of gold. It is viewed as a commodity, a barbaric relic with no real value, as an investment, and as a position to be traded. But if we set aside these preconceived notions and examine the current fiat monetary system, it is not too difficult to understand why gold and precious metals are resuming their historical role as money the world over.
While gold is a commodity that has multiple industrial uses in the fields of electronics, engineering and medicine to name a few, it is much more than that. Quite simply, gold is money. Throughout history there have been many forms of money, from salt to grain to shells to the fiat (paper) currency that is used today. Most don’t stand the test of time. Gold, however, has endured as money for over 3,000 years. This is because it meets all the criteria for money, where others have failed.
To satisfy the functions of money, an item must be a unit of account, a medium of exchange and a store of value. Gold is all of these things; it is durable, portable and divisible. It also has an intrinsic value and, of crucial relevance today, it cannot be created by central banks. Gold is a tangible asset; fiat currency is merely printed paper created by government decree. It is only the promise written on the paper that gives it any value. Paper money is not a store of value; the US dollar has lost over 80% of its value since 1971.
There has never been a fiat currency that has retained any purchasing power for a significant period of time. When Nixon abolished the gold standard in 1971, the price of gold was $42 an ounce. Today it is above $1500 an ounce. Meanwhile, in 1971 a gallon of gasoline (petrol) could have been bought of around $0.30, a new Ford car for around $3000 and an average house in the USA for around $25,000. The massive devaluation of the US dollar has been due to the inflationary effects of the monetary policies of the US government.
Gold is traded around the world. The financial institutions of the world understand gold is money. The daily turnover in gold at the London Bullion Market Association is over $20 billion, but the actual volume traded is estimated at five to seven times that amount. This isn’t jewellery being traded, this is money. Central banks hold gold as part of their reserves, they understand gold is money, and since 2009 have become net buyers of gold for the first time in decades.
Ownership of the physical metals is one of the best ways to protect yourself from the potential disaster that looms in our near future. And even though precious metals prices continue to push higher it is not too late to exchange a portion of your paper assets for hard assets as such as gold in order to protect your wealth from this continuing devaluation.
By looking at the weekly chart of gold from November 2009, it is clear that the price of gold remains in a upward trend, and each time it has corrected, it has subsequently moved to a higher price.”
About the author: David Levenstein is a leading expert on investing in precious metals. Although he began trading silver through the LME in 1980, over the years he has dealt with gold, silver, platinum and palladium. He has traded and invested in bullion, bullion coins, mining shares, exchange traded funds, as well as futures for his personal account as well as for clients.
His articles and commentaries on precious metals have been published in dozens of newspapers, publications and websites both locally as well as internationally. He has been a featured guest on numerous radio and TV shows, and is a regular guest on JSE Direct, a premier radio business channel in South Africa. The largest gold refinery in the world use his daily and weekly commentaries on gold.
David has lived and worked in Johannesburg, Los Angeles, London, Hong Kong, Bangkok, and Bali.
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