Is gold a commodity money?
Examples of commodity money are gold and silver coins. Gold coins were valuable because they could be used in exchange for other goods or services, but also because the gold itself was valued and had other uses. Commodity money gave way to the next stage-representative money.
Examples of Commodity Money
Precious metals and coinage: Precious metals, such as silver, gold, platinum, and copper, have been used since ancient times as commodity money. Ancient coins were made of gold, silver, or other metals.
The functional reason why central banks won't go on the gold standard is that gold is a poor circulating currency, as it is not very durable and is easy to counterfeit. Gold coins are so soft that people will “sweat” them by simply shaking a bag of gold coins and selling the dust that comes off.
Under a free market system, gold is a currency. Gold has a price, and that price will fluctuate relative to other forms of exchange, such as the U.S. dollar, the euro (EUR), and the Japanese yen (JPY). Gold can be bought and stored, but it is not usually used directly as a method of payment.
Gold is a store of value and thus an investment opportunity for individuals. Gold is rare and difficult to extract. Gold is malleable and can be formed as needed for use in, among others, electronics, dentistry, medical tools, and the defense, aerospace, and automotive industries. Gold is durable and noncorrosive.
Key Takeaways. Throughout history, gold has been seen as a special and valuable commodity. Today, owning gold can act as a hedge against inflation and deflation alike, as well as a good portfolio diversifier.
Historically, examples of commodity money include gold, silver, tea, alcohol, and seashells. Even if no one would accept such goods as trade, the owners could still use them for their purposes.
Answer: True
Commodity money such as gold or silver has value instead of just being money. The US dollar for example has no value except being money. The US dollar used to be backed by gold in order to derive real value.
Gold is a highly liquid asset, which is no one's liability, carries no credit risk, and is scarce, historically preserving its value over time.
Technology is becoming more efficient and less expensive, so it could replace gold as a valuable asset. Overall, it is difficult to say whether or not gold will become worthless by 2029. There are a number of factors that could have an effect on gold's value, and there is no sure way to predict the future.
Why is gold considered a dead investment?
Gold has lackluster returns over time
If you're buying gold because you expect to get rich, just stop today. The returns on gold pale in comparison to those on stocks or stock funds over time. While gold may outperform over periods of time, the performance of stocks has been vastly superior – here are the numbers.
Hard money is a currency made up of or directly backed by a valuable commodity such as gold or silver. Hard money has historically been highly prized for its greater usefulness as money to mediate the exchange of goods, store value, and conduct profit-and-loss accounting.
The only types of gold a bank would accept are those in coin or bullion form (i.e., gold bars), and only those with a letter of authenticity certificate.
Because gold doesn't need the backing or guarantees of a bank, government, or anyone else, the metal is treated by investors as a 'safe haven' asset that can hold its value when other assets can't.
Palladium is currently the most expensive of the four major precious metals - gold, silver, platinum and palladium. It is scarcer than platinum, and is being used in great quantities for catalytic converters in cars. Because of this, prices have swung between the two metals.
Silver prices, like gold, tend to have an inverse relationship with interest rates. A higher interest rate environment hurts demand for silver and gold as the precious metals do not pay any interest, making them less appealing compared to alternative investments like bonds.
Pure gold is a noble precious metal, and the least reactive of all metals. Gold does not rust, nor will it tarnish.
Investing in 1-ounce gold bars, like any other investment, generally requires a long-term perspective. While gold has proven to be a reliable store of value over time, its price can experience short-term fluctuations — especially in uncertain economies like the one we're experiencing now.
Gold is considered a safe investment. It is supposed to act as a safe haven when markets are in decline, because the price of gold typically doesn't move with market prices.
Safe assets such as U.S. Treasury securities, high-yield savings accounts, money market funds, and certain types of bonds and annuities offer a lower risk investment option for those prioritizing capital preservation and steady, albeit generally lower, returns.
When did the US remove the gold standard?
This, along with the fiscal strain of federal expenditures for the Vietnam War and persistent balance of payments deficits, led U.S. President Richard Nixon to end international convertibility of the U.S. dollar to gold on August 15, 1971 (the "Nixon Shock").
Commodity money has intrinsic value but risks large price fluctuations based on changing commodity prices. If silver coins are used, for instance, a large discovery of silver may cause the value of the silver currency to plunge, resulting in inflation.
Commodity currencies are most prevalent in developing countries (eg. Burundi, Tanzania, Papua New Guinea). In the foreign exchange market, commodity currencies generally refer to the New Zealand dollar, Norwegian krone, South African rand, Brazilian real, Russian ruble and the Chilean peso.
However, commodity money also has its disadvantages. One disadvantage is that the value of the commodity can be volatile, which can lead to fluctuations in the value of the currency. Another disadvantage is that it can be difficult to transport and store, especially in large quantities.
Commodity money is created from precious metals such as gold and silver, while representative money represents a claim on a commodity that can be redeemed. China was the first country to use fiat currency, around 1000 AD, and the currency then spread to other countries in the world.
