Is gold a commodity, an investment, or money?

Gold is all of those things.

At times, it behaves like a commodity, following the ups and downs of commodity indices. At other times, gold is viewed as a safe-haven investment. When there is market turmoil, investors flock to gold because it is ‘old money’.

Right now, gold is behaving more like money than a commodity or an investment. Central banks have consistently devalued currencies since the market crash in 2008.

That’s a big deal because it shows that people around the world are losing confidence in paper currencies.

What indications are there that gold is behaving like money?

For one thing, gold’s price action has diverged from the price action of other commodities. This divergence first appeared in late 2014, but has become more pronounced in recent months.

Right now, as investors around the world lose confidence in a long list of emerging-market currencies, preferences are shifting toward US dollars and gold. This accounts for gold’s out performance of the rest of the commodity complex when measured in US dollars.

And when the price of gold is measured not in US dollars but in rubles, yuan or rials, the percentage price increase in gold is even more impressive, because those currencies have all declined lately against the US dollar.

When you understand that gold is money and competes with other forms of money in a jumble of cross-rates with no anchor, you’ll understand why the whole monetary system is going wobbly.

It’s important to understand that all currencies are just one form of money.

It’s not necessarily the best for all investors in all circumstances, but gold is a strong competitor in the horse race among various forms of money.

Lost confidence in fiat money starts slowly, building rapidly to a crescendo. The end result is panic buying of gold and a price super-spike. Why? Because gold doesn’t have a central bank and associated risks. In addition, gold always inspires confidence because it is scarce, tested by time, and has no credit risk. That’s why investors tend to flock to gold during times of uncertainty.

Trader’s Corner — This Is Why Gold Could Hit US$1,500

Let’s have a quick look at the gold price using my method. One of the key things I have shown you is that markets have a habit of having false breakouts far more often than breakouts. Gold is currently having a false break of the 2011 high that remained the all-time high for nine years.

The Trust Quotient: Gold and Bitcoin versus the Fed

Trust is an ethereal term, but one thing you can be sure of is that endless rate tinkering and debt-funded growth leads to the decay of it. And I think there is another asset which thrives in a low-trust environment. This is cryptocurrency, and Bitcoin...

Special Market Update: Black Swans and Ancient Money

Dear Reader, In today’s Money Morning…three ways to buy gold during a mania phase…plus what would slaughter the bull…black swans and ancient money…debt, demography, and crashing oil prices…and more… We continue our special coverage of financial markets in the age…
Money Morning Australia