One of my more controversial views in finance is that gold will one day be viewed as a mere commodity and not a form of money. My reasoning for this view is simple – I think the era of money as a physical item is long behind us and that the future of money rests with electronic forms of money that serve primarily as a record of account and medium of exchange. That means the need for physical gold as a form of money will likely cease to exist or at least be reduced substantially in the future.
As for gold at present, well, my views are simple:
- Gold is definitely a form of money because it is viewed by many as a medium of exchange.
- Gold is not a very good form of money because it is not a widely accepted medium of exchange.
- Gold is primarily a commodity, but the idea of gold as “money” still remains.
- The price of gold has what I refer to as a “faith put” embedded in it because it is often hoarded as a form of money.
But an interesting thing has happened to gold in the last 30 months. It has started to act a lot like a regular old commodity. In fact, its “faith put” seems to have been removed to some degree. If we look at the CRB Index and the price of gold there’s actually been a rather high correlation:
It all makes me wonder if gold isn’t starting to be viewed for what it is – a mere commodity? Of course, I am biased and in the minority of people who hold this view (central banks and governments don’t even agree with me!), but I do wonder if this is the beginning of a secular trend or merely a case of me cherry picking some recent action?
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.