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What Makes Gold the Perfect Form of Money?

Nov 06, 2019 | Fred Abadi |

What Makes Gold the Perfect Form of Money?

Gold exists as a form of money alongside paper currencies and other financial assets. If we want to compare their performance, especially with an eye on the future, we must first understand gold’s backstory. The properties that make gold the perfect type of money are the same today as they have been throughout the past 5,000 years:

  1. Gold is rare.
  2. Gold can be exchanged.
  3. Gold can be divided.
  4. Gold cannot be corrupted.
  5. Gold is portable.

Physical gold contains these five properties, which is why the precious metal became the foundation of the world’s monetary system. Each nation decided individually on gold as the perfect form of money even before bilateral or international commerce and travel became common, which speaks to the global recognition of gold’s strengths.

As nations developed independently and started trading with each other, the unique properties of gold made it the perfect currency, and it was recognized and accepted everywhere for trading. Gold’s most important feature is its consistent nature, which throughout history has evened out all accounting and price systems.

Contributing to gold’s consistency is the fact that it’s one of the finite elements known in the universe. Because it’s a physical element, its properties will never change. It’s been like that for billions of years and will continue to be so for billions more.

Andrea Sella, an award-winning professor at University College London, has researched the practicality of using gold and other elements as currency. Sella concludes with just two perfect elements that can serve as money—gold and silver—because they are rare yet not too rare and because their relatively low melting points make them suitable for coins, jewelry, and ingots. When we then consider that silver tarnishes when exposed to even minute amounts of sulphur in the air, gold stands out as the most practical and most consistent element for use as currency.

And, of course, the beauty of the precious metal only adds to its desirability.

About Fred Abadi

In his over 14 years in the financial industry, Fred has focused on commodities and precious metals as investment assets. He has penned several articles on topics such as the commodities markets and investing in precious metals for retirement accounts. Fred has helped thousands of clients safe-guard their investments with gold and other precious metals. He has been with Gold Alliance for over two years as a leading Sr. Portfolio Manager.