O Negocio

A Few Words about Gold

Gold. The “barbarous relic.” The word has mystery and invokes a long history of adventure, from the Roman times to the founding of the New World to the annihilation of large numbers of people and ways of life. There is power in it. If you haven’t ever seen or held a gold coin, you should. It’s easy to do. Any coin shop will have them, and the people behind the counter will jump at the opportunity to let you hold one.

Hold a one-ounce coin. It’s compact, beautiful. Heavy. Powerful. A gold coin feels much different in the palm than the coins we see every day, which are much lighter. They are made out of much cheaper metals.

The first time I ever saw a gold coin as an adult was in 1998. It was an Austrian “Philharmonic.” That is a gold coin minted by Austria with an engraving of the philharmonic orchestra on the back of the coin. Mine was minted in 1908, and it was in beautiful condition. A work of art. Such a coin was considered “bullion” which means it had no “numismatic” or “rarity” value. It was priced simply as gold, and gold was valued at $275 per ounce. The coin was mine for $300.00. It now costs much more.

Don’t get sucked into a debate about whether gold has “intrinsic” value. Gold has certain industrial uses and some qualities different from other metals, but it derives its value simply from the fact that people have always wanted it. It’s rare enough to fight for, but common enough for everyone to know what it is. People have always wanted it, and they’ll probably keep wanting it, and thus it fulfills all the requirements of money. Whether it is, in fact, “money” is a long-standing argument, but the question is academic. Gold will almost certainly hold its value and gain against any country’s currency over the long run.

You might say the “opposite” of gold is “fiat money.” In the U.S., fiat money is federal reserve notes, generally (though perhaps incorrectly) called “dollars.” At one time the “dollar” was a unit of currency defined in gold or silver; now it exists on its own. Federal reserve notes derive all their value from the mandate of the government that they shall be used to pay all debts, public and private. Fiat currency can be printed at will and at essentially no cost by the government. Thus fiat money retains its value, if at all, based on the government’s refusal to print more money. Because governments rarely resist the impulse to print and spend, gold gains in value against fiat currency over the long run.

Gold, on the other hand, is not dependent upon any governmental action or inaction. Some people therefore consider holding gold a “vote against the government.” Although I recognize the political implications of holding money that is independent of government, I believe it is simply common sense to keep some of what you own in a form beyond the power of government to control.