“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!
