Gold Is Money. Gold Is Not Money. Who's Right? Why Do You Care? HERE'S What You Should Want To Know.
So much argument about whether gold is or is not money. Heated debate over a definition. I have argued that it is not.
I shouldn't have. There was no sense in it. The real question is whether it holds up to the other argument always made for it.
Will it protect you from inflation? Is this time really different? Do you believe we've never been here before? Are you old enough to remember the last time everyone was going on about runaway government printing presses, unemployment, the national debt, the deficit, and on and on ad infinitum?
Well. I am.
It was in 1980. Yes. We have been here before.
Feb 9, 2011, just a few months ago, I made up my mind to prove my case. Look, I'm not going to change anyone's mind about whether gold is or is not money.
I realize now that arguing about the definition of a term was never even important to me.
Don't allow this noise to obscure what's really important.
Whether or not you accept defining it as money, what you really need to do is to view the facts objectively and decide for yourself whether or not you want to invest in it.
Late at night on Feb 9, I spent hours researching facts and presenting them in a blog that shows, once and for all, exactly how gold has performed as a hedge against inflation for the majority of the last 40 years. What you do with that information is up to you.
Many of you may have missed it. There were only a handful of commenters.
I am going to present you with a few facts from the original blog regarding gold's behavior in the past, and if you want to read the original blog, I'll provide a link. The whole comment section was largely a debate between David from Qatar and myself.
He was right insofar as I shouldn't have been arguing that gold wasn't money. If you wish to call it money I really just don't care.
My point was that its valuation as measured against a basket of goods is at or nearing a historical high. The same arguments being made justifying it now were being made in the past at similar valuations as measured against a basket of goods.
I presented a chart showing the average price of gold each year since 1971 in today's dollars. I will not reproduce it here. You can go to the original blog to look at it. The reasoning is obvious. Tracking gold's price movements tells you nothing when the value of the dollars those price movements are measured in is always moving.
So using an inflation calculator, I painstakingly converted the average price for each year since 1971 into today's dollars.
Here is some of what I found.
The time span I examined included 33 5-year periods, 28 10-year periods, 23 15-year periods, and 18 20-year periods.
5-year periods (33 in all)
There were 16 5-year periods in which gold gained enough to beat inflation.
There were 17 5-year periods in which gold either didnt gain in value or didn't gain enough in value to beat inflation.
11 of those 5-year periods gold went down in price and lost money, period.
10-year periods (28 in all) (I miscounted them as 27 in the original blog, correcting myself in the comment section)
In 18 of those 10-year periods, gold either failed to gain in value or failed to gain enough in value to beat inflation.
In 11 of those 10-year periods, gold went down in price and lost money - period.
15-year periods (23 in all)
There were 7 15-year periods in which gold gained enough to beat inflation.
There were 16 15-year periods in which gold either didn't gain in value or didn't gain enough to beat inflation.
9 of those 15-year periods gold declined in price and lost money...period.
20-year periods (18 in all)
There were 5 20-year periods in which gold gained enough to beat inflation.
There were 13 20-year periods in which gold either failed to gain in value or didn't gain enough in value to beat inflation.
There were 5 20-year periods in which gold declined in price and lost money - period.
By the way, as is shown in the 4th column of the chart I posted in the other blog, showing the declining value of the dollar from 1971 on...inflation never let up. Whether gold rose in value, stayed flat (it did that a lot) or fell in value (sometimes a lot) inflation was steadily at work, year in and year out.
This work encompassed the years from 1971-2008.
I don't care if you want to call gold money. As I said, I never should have been drawn into that argument. What I really care about is presenting pure, incontrovertible facts to help you decide whether you want to put your money in it at these valuations.
Here's the link to the original blog, titled, "Historical Gold Prices And Inflation."