"Is Gold Money?"

David Andolfatto:

Is gold money?, by David Andolfatto: You've seen the advertisements on TV. They come in two forms:

[1] We will buy your gold!!!
[2] We will sell you gold !!!

Ad type [1] argues that with gold prices at an all time high, now is a good time to cash out of your inventory of gold (jewelry, coins, etc.). All you have to do is put your gold in an envelope and mail it to them; they will mail you back cash. They promise to reverse the transaction if you are not happy.

Ad type [2] argues that with gold prices going higher, now is a good time to turn your cash into gold. This type of ad typically stresses the virtue of gold as money, something that will retain its value even as the world comes to an end. ...

In ad type [1], people are trying to buy your gold...that is, buy it with cash (money). This ad appeals to people who want cash now. They want to buy things, now. So, if gold is money, why don't they just use the gold to buy the things they want now? Answer: gold is not money.

In ad type [2], people are trying to buy your money...that is, buy it with gold. If gold is in fact money, why would they want to sell it for paper? This ad appeals to people who want to make provisions for the end of the world. When society collapses, no one will want to hold fiat money; but everyone will hunger for gold.

These people are delusional. Think of Mad Max. People will hunger for food, water, and fuel -- not gold. Which is to say, not only is gold not money in a disaster scenario -- it is not even wealth!

I wonder whether the people who fall for ad type [2] ever ask themselves why these prognosticators of future financial turmoil appear so willing to buy their paper money for gold? Yep, they must be mighty fine folks to be willing to dispose of their gold supplies in exchange for your fiat paper.

So there you have my little rant of the day....