by tonytran2015 (Melbourne, Australia)
Gold for storing wealth.
#gold. #gold price, #gold investment, #gold sale B.O.E., #tribal memory,
Human productivity varies wildly and each person needs some method to store the surplus from his periods of high productivity for use during periods of low productivity. Gold can be used for storing that surplus or wealth over long periods.
Gold is also a highly sought after commodity with stable price, and its owner can be sure that his surplus/wealth will not disappear overnight.
However gold is not a good investment as any interest earned by lending gold bars is really small (no more than 1%). Only jewellers borrow gold bars. They want to avoid resupplying their stock at New Years and wedding seasons.
1. Gold is in constant demand.
1a. Jewellery industry and hand-craft jewellers needs it. This is due to its lustre, malleability and corrosion resistance properties.
1b. Micro electronic industry needs it to make electrically high conductance terminals and connections.
1c. Micro engineering industry needs it to prevent rust and corrosion of their mechanical components.
1d. Electronic, optical, aviation and building industries need it to make transparent metallic films.
1e. Dentistry also needs it for dental works.
1f. Surgical medicine needs it for non-allergic implants.
1g. The cost of extracting gold from the ground is remarkably unchanged over thousands of years. Advances in technology is exactly offset by scarcity. Now people have to go 3km deep below the ground to mine gold in South Africa and in Canada (). Soon they may go 4km deep below ground surface to mine gold.
1h. It is corrosion resistant and does not degrade with time.
1i. Any small, light amount of gold still has a high value.
1j. Any common amount of gold can be easily subdivided.
So it satisfies all the requirements for being a bartering medium.
2. Gold price is not over-inflated.
The long term average of gold price reflects its utility value.
The price is not over-inflated due to massive amount in storage by various Government Central Banks in the World. They would grab any opportunity to sell their overpriced stocks. The Bank of England (wrongly?) set its selling price at US$268/troy oz in its massive unloading of 200tons of gold in the period of 1999-2002.
If gold price was held up by the vicious cycle of greed-herd mentality, the cycle would have been broken up by the prolonged heavy attack by the sale from Bank of England.
Despite such tremendous attack on its price by Bank of England, gold price did not collapse like the price of tulips or real estates when their bubbles bursted.
Right after the end of its massive sale, gold price rose up to US$600/troy oz, then to the current price of US$1000/troy oz. The sustainable price is explained by the difficulty in extracting gold from the ground .
So, contrary to claims (propaganda?) by some authors, the average price of gold is neither pushed up by any remnant of prehistoric tribal memory nor pushed up by greed, fear and herd mentality (A lie told once remains a lie but a lie told a thousand times becomes the truth .).
3. Using and buying gold.
3a. When gold possession is legal, people can use any suitable amount they like. They still have to stick to unprocessed gold from reputable producer.
3b. When possession of unprocessed gold is prohibited, people still can use gold rings made by reputable jewellers in weights of 0.1, 0.2, 0.3 troy ounces as their medium of exchange.
4.Storing wealth using gold.
Example: You want to buy a $80000 house and each year you can only save up $20000.
If you save your fiat money, then after 4 years you will have $80000. If yearly inflation is 6% the price of that house will be then
$8000×(1+6%)×(1+6%)×(1+6%)×(1+6%) = $100998 .
So you are $20998 short of your target!
If you bought gold for the first 3 and 1/2 years then after 4 years you will have in hand
$79186(gold to sell)+$10000(cash) = $89186 .
In this case you are only $9186 short of your target!
So gold is much better than cash (fiat money) for storing wealth. You are still short of target since the actual value of your new cash saving reduces every year.
Gold is much better than cash even in any medium term (abour 3 years duration) financial plan.
You can also see why many governments want to outlaw the possession of unprocessed gold: Their fiat currencies are inferior to gold.
The author is neither associated with gold industry nor having any interest/betting on gold price movement.
. tonytran2015, Preparing for cashless trading, https://survivaltricks.wordpress.com/2016/12/05/preparing-for-%e2%80%8bcashless-trading, posted on December 5, 2016
. top ten deepest mines world South Africa, http://www.mining-technology.com/features/feature-top-ten-deepest-mines-world-south-africa/
. Sale of UK gold reserves, 1999–2002, wikipedia, https://en.m.wikipedia.org/wiki/Sale_of_UK_gold_reserves,_1999%E2%80%932002
. Joseph Goebbels quotes, azquotes.com, http://www.azquotes.com/author/5626-Joseph_Goebbels.
PREVIOUS MONEY Blogs
Click here for my other blogs on SURVIVAL
Click here to go toHome Page (Navigation-Survival-How To-Money).