“Gold is the King of Money”, while “Oil is the King of Commodities” … is the common saying. There have been so many articles that opined on the differences, but let me just throw in a few:
-Historically there has been a clear difference in the value of gold (+precious metals) and other commodities. Take for example a strong deflation. Here, money (and especially gold) becomes worth more, while commodities crash due to drop in industrial demand.
-This is basically because gold has usually strong monetary demand (and small industrial demand) and copper, oil, lumber have strong industrial demand (and small monetary demand). The reasons are, that gold can be better stored, divided, exchanged, transported, and authenticated, and since it is expensive, the industrial use is confined to special applications. The result is further that gold trades at a strong premium to what it costs to mine, while other commodities are usually closer to their intrinsic cost (more or less).
-Gold has been universally accepted as barter for thousands of years. It has the value that it trades on a free market. This can be the futures market (say $660/oz.) or gold coins (which you can sell to the dealer for say $640/oz.). Any person on the street that has goods worth say $620, would be crazy not to accept an ounce instead, which he immediately can sell or exchange with the next person. (Legality and taxation not withstanding)
-Yes, I get the point, that shops price their goods in dollars and not in gold. But all three are still exchangeable with each other. Both, gold AND the dollar have some risk. People might charge more in ounces of gold for a while (like in 1999, or theoretically there could be a huge depository found). The same can happen to the dollar (if the government is reckless, or a huge depository is found in Uncle Ben’s backyard).
-On average, throughout history, gold was closer connected to the price of goods (say a well-made suit, for which you had to work, say, a week) than the dollar (or many other paper currencies)…That’s money for me!

Gold is universally accepted as cash money. How many countries have had the same government for 75 years–not a lot. When you change governments, you change currency. Poof there go your savings. Most of the big countries hold large amounts of gold. All they have to do is print paper to own it. Not a bad trade.

99% of the worlds gold is still with us. That doesn’t really sound like a commodity. In my world commodities get used up. Don’t quote jewelry consumption, that usually quoted as a percentage of the current years production and that gets recycled eventually.

An ounce of gold can be hammered into a sheet of foil measuring 70 square feet. Then there is electroplating.

Ever wonder why the US government went off of the gold standard? You can’t print more money unless you back it up with gold. Without the gold standard, there is no restriction on printing money.

Inflation is a way the government can tax everyone. Free health care, social security for everyone, free home ownership. Gold doesn’t have to buy this pipe dream. Gold could hit $3,000 per ounce, that doesn’t mean you’ll be rich, it means that you had better ask your employer for $3,000 a week as your salary.

In 1964 my dad made $7,000 dollars a year and our house cost $25,000 brand new. My mother didn’t have to work. Gold was $32 an ounce. The school lunch was 25 cents

If you think of gold as an investment or commodity, keep away from it. Gold is an insurance policy, it will buy just as much today as it will in 30 years.

There is another saying, “bad money chases out good money.” Have you seen any real silver coins lately? The government didn’t melt them down. How about a $5 dollar gold piece? FDR passed a law making it illegal for US citizens to own gold–they repealed that in the 60’s (I might be wrong on the date).

It depends on how you define “money.”

I think of money as “any item that is universally accepted in trade with anything else in a given geographical area.”

To me, money is a tool that facilitates trade, nothing more. It allows trades to happen that could otherwise never happen.

Before money (per this definition) everything had to be bartered. If I had wheat and I needed shoes – I had to find a shoemaker that needed wheat, which may be a very limited market. My feet may freeze or the wheat may rot before I can find a trade partner.

To alleviate this problem, gold was used as a tool to facilitate the trade, to open up the markets. Yes, gold is a commodity, but it has unique properties which make it useful as a trade facilitation mechanism (i.e. money):

1) It is physically useful.
2) It doesn’t get consumed.
3) There is a limited amount of it in the world.
4) You can’t manufacture it.
5) It is very dense, thus small in size for a given weight.

Items 2, 3, and 4 make it very “stable” as the supply is naturally regulated by the only laws which nobody breaks – the laws of physics.

After a while, some smart guy realizes, you don’t actually have to move the gold around with you. You could store lots of gold in one place and trade pieces of paper which identify the holder of that paper as the owner of a certain amount of the stored commodity. This is real “money” at its best. Money should be a title of ownership to something physical, durable, useful and stable in supply. It is these traits that make money univerally acceptable.

With this concept of money in place, if I have skills to provide a service and I need meat, I don’t have to find a rancher who needs my services. I can find anyone who needs those services, get paid in money, and pass the money onto the rancher in exchange for meat. AND I don’t have to carry the gold from my customer to the ranch.

If a piece of paper gives you title to an ounce of gold, that piece of paper (money, currency) is said to be “backed” by gold. If a currency gives you title to a ton of corn, that currency is “backed” by corn.

Of course, corn is a silly item with which to back currency, but if you wanted to use it – hey, knock yourself out.

So, lets make a distinction between gold as a currency (where you carry it around in your purse and give it to shopkeepers) and gold as a backing for currency (where you carry around paper which gives you title for gold stored somewhere).

Unless the gold storage and/or banking system became un-trustworthy, gold itself may never become popular as money simply because it is heavy and difficult to store securely.

However, pieces of paper backed by gold, silver, diamonds, platinum or some other durable, valuable, and stable commmodity could easily come back. I hope it does.

The mere emergence of a “gold-backed” currency could, in fact, increase the popularity of physical gold as money because you would know exactly how much you were paying with respect to the gold-backed currency. Of course, every store would have to buy a scale, which I just don’t see happening.

There are several services that do that. I guess e-gold.com comes to mind. Even an ETF like GLD is not much different, except for the extra transaction via dollars when doing a purchase or sale. I guess the government wouldn’t be too happy, since all the capital gains taxes created by inflation would dissapear. They will have to raise taxes somewhere else.
Also, even while gold is different from regular commodities, it still used to cause these cyclical fluctuations from credit creation (inflation) to bust (deflation). The establishment decided that with managing a fiat currency they could better phase out those swings. Of course they never got beyond the “credit creation” phase either, since they didn’t have the guts to reduce the money supply (except hero Paul Volcker). So with gold you would have booms/busts, and then we would have to take our medicine from time to time (or prepare better ourselves). Doesn’t sound wrong either. Also, better than a basket of commodities in my opinion, since then again it becomes arbitrary, which ones to rebalance and when.

inre the March 24 upleg: I agree with Mr. Hamilton that only speculators can move a market as large as gold ($2.7 trillion @ $550/oz by his numbers) up $847 billion in 34 days. I’m assuming that dropping the M-3 numbers was the trigger for this upleg but I’ve been wrong before.

Talk to Mike and April at Cellar Coin in PB if you are interested in purchasing physical metals. Mike has consistently had the best prices whether I was buying or selling. (PS: Mike won’t know who you are talking about if you tell him “4plexowner sent me” and I don’t benefit from his business in any way)

Excellent reasons for holding precious metals, powayseller. As Richard Russell points out, gold will always be worth something but who knows about paper assets.

Also prudent advice for everyone to be prepared within their homes. Start with the idea that you won’t have any supplies except what you have inside your house for three days (no grocery store, 7/11, COSTCO, etc). That means you need water, food, etc. Then work up from that point – add some dehydrated or freeze-dried foods. George Ure (www.urbansurvival.com) recommends focusing on high-protein foods for storage (#10 cans frz-dried chicken, for example). Do you have a first aid kit in the house? Think about the things you might need in an emergency situation and make sure you have them on hand. Pay attention to natural disasters that have occurred in the US – one of the things I notice is that stores that remain open stop taking anything except cash for payment – no credit cards, ATM, etc – plan appropriately.

I find it amazing to think about today’s electronic financial world and the potential for problems. Rick Ackerman (www.rickackerman.com) paints this potential scenario: a financial meltdown occurs overnight in Asia or Europe and the US markets don’t open the next morning. All the stocks and bonds in the world won’t do you any good if they only exist in an electronic account somewhere.