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No, not in the legal sense, but it is perhaps the next best
thing to holding cold, hard cash. Gold can be easily
converted into money in every nation on earth, at published
market rates, with the only difference in price being the
local currency conversion rate to the currency in which the
gold is being sold. Ergo, when the Rand is weak against the
dollar, South African Gold becomes "cheaper" to purchase for
users of dollars, as opposed to when the dollar is weak
against a strong Rand. However, since the USA is also a
major producer of gold, US gold is cheaper for those using
higher valued currencies. Why, then does the general trend of a weaker dollar mean a higher gold price? Perhaps the huge gold mines in Nevada withhold their gold from market during weak dollar periods, thereby creating a shortage of gold on the market? (Conspiracy Theory) No, because if there is a universal currency, one which all other currencies are measured against, it is the US Dollar. Some countries even peg the value of their currency to the value of the US Dollar. And, if the dollar has a dramatic impact on the value of other currencies, would it not have a dramatic impact on the price of gold? Yes, it does. When the dollar is devalued to, let's say to $0.90 over the period of a year, gold gets stronger. After all, if the paper is weak, the bullion must historically be strong, since it has been around much longer than any currency in use today. And gold is one of the alternate commodities to the Dollar, Euro, Rand, etc.. Gold has always been counter cyclical to monetary instruments in general, and has been called the "doomsday currency" for many years. So gold is not so much money, but a shiny commodity, like currency, which is also a commodity, and traded on open markets around the world. My theory is, that gold may and will fluctuate with gold producing and gold buying countries' currencies in the very short term, but in the long term, it is the US Dollar that will have the most influence on the price of gold, from currency fluctuations. Supply and demand is ultimately one of the most important factors in determining value, and since, by nature, gold is in short supply, long term, demand will cause long term gold prices to rise, or fall. Treasuries that hold large amounts of gold and dump it on the market will create temporary over-saturated supply situations and cause the price to drop. Most nations should realize that dumping gold is not in their best interest, by destroying the short term price of gold they will not achieve top dollar (Euro, Pound, etc.) for their commodity, nor will their remaining reserves be worth as much, short term. Further, it is always a good idea to be diversified in investments, and gold is always a good asset to have in a portfolio, whether it be a nation or an individual. Gold is not money, gold is a commodity. Money is a commodity. Gold and money are both commodities, which at a specific point in time, one will be more valued than the other. That is the way commodities and the free market function. But that's just my opinion. Charles Kubach Mine-Engineer.Com 28 July, 2004 |
