On the surface, gold is not often seen as a convenient financial instrument. It is old fashioned, requires a place for storage and is not easily obtainable for the average American at current prices. However, the precious metal continues to evolve as the worldwide financial crisis motivates individuals to seek protection.
Gold may be old fashioned, but only because it has stood the test of time extremely well. For thousands of years, gold has satisfied the three common requirements of money. First, it is a medium of exchange, as gold can easily be bought or sold in the market without causing a large movement in price or a loss of value. Gold can also be transported easily from one seller to the next buyer with little debate or confusion. While something like a painting may have value, its price can be highly subjective and there is no telling when the right buyer will come along and purchase it.
Secondly, gold is a unit of account. Its value is easily measured by weight and the prevailing market price per ounce. Gold’s third and perhaps most important characteristic in meeting the requirements for money is its ability to act as a store of value. The price per ounce fluctuates on a daily basis, but in the longer-term, the precious metal is a reputable way to store value, especially when fiat currencies are called into question.
Since 2001, gold has climbed from $270 an ounce to more than $1,600 today. The yellow metal is also on a massive winning streak, increasing in price for the past twelve consecutive years. It is the longest run of positive gains for gold since at least 1920, according to Bloomberg.
Critics have their doubts…
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