Why Is Gold Money?
Kendel asked me this Friday night. She's not your average wife. A CPA by profession, she's a vice president of a local biotech company here in Austin, tasked with helping manage the company's finances. She reads a company's Form 10-K (a form required by the SEC - that's the Securities and Exchange Commission, not the South Eastern Conference) before she invests in it. Before we met, I thought a 10-K was a race you ran in for charity.
We got into a discussion of grid down economics (and just so you think I do take a break from this stuff from time to time, I did take her to dinner Friday night at the restaurant of her choice. And I paid. And we didn't talk about this stuff, until she asked for a tour of the storage unit where I'm storing supplies. But that's for another blog.). She asked me why people should hold precious metals as a preparedness tool in lieu of investing in food and water.
She and I did some quick research, and she and I came up with two links we both felt answer this question fairly well. First, here's one from National Public Radio (and not from some what some you would call a tin foil hat guy) which lays out the scientific reasons gold makes a good form of money. Next, this piece may help fill in some gaps as well - but it does come with some Biblical overtones, so those turned off by that will likely want to skip it (although I think it's very well done.)
In the end, gold is money solely because society has said it is for thousands of years. There could be times (and we're talking Mad Max Thunderdome stuff here, which I want to stress to all of you is highly unlikely) where other commodities like food and water would be far more in demand. In the end, when civilizations have looked for a medium of exchange and don't want to use a fiat currency issued by a government or central bank, they have turned to things like gold and silver.
So what do you do with the gold and silver in a crisis? First, let me stress the types of crises you'd be using this stuff in would be economic crises. If Al Qaeda were to hit us again, we're not going to run to our local grocery store and clean them out of Pop Tarts and Robitussin using our gold and silver coins. As Jerid has pointed out before, the metal coins would be of utility only when our currency was rapidly declining in value (a hyperinflation scenario) or when there's a shortage of currency due to regional power failures preventing us from using the ATM or local bank branches.
In those economic emergencies, we would use metals as currency. Most likely, we'd be using the gold coins to buy currency and the silver coins for transactions for good and services.
I will be the first to admit I didn't buy into the whole "you need an investment in precious metals as part of your plan" concept until about two years ago. I was rather late to the party. Like many of you, I took the position that you can't eat gold and silver, so what's the point in having it? These metals are a hedge against the possibility of an economic emergency, giving you another tool for acquiring what you need in the event you don't have valuable cash at your disposal.
Yes, I know - it's crazy to talk about stuff like this. I am in a bit of disbelief that I spend time thinking about these things. But if a small investment in something will give you an edge and piece of mind, it may be worth your time to consider doing so.