Investors think of what will happen to gold prices in a few years, while traders focus on much lower timeframes: days, hours, or even minutes. But few consider what the price will be like several generations from now.
Gold is imperishable; its chemical and physical traits make it perfect for use as money. First, it's a rare metal that is highly valued and has many practical applications. Second, you can mold it into any shape and divide it into tiny parts, since gold is virtually indestructible.
Of course, gold money has been manipulated in the past. Coins would be filed around the edge to obtain precious gold dust. Next came gold storage receipts and finally the first gold ETFs. Fractional-reserve banking as we know it emerged.
The media often report new discoveries of ancient gold and silver hoards: for example, a hidden treasure trove of 15 kilograms of Roman-era gold was recently found in Augsburg, Germany. For experts, such finds are an important signal: even though Roman gold coins are now placed in museums, they are proof that the only indestructible form of money retains value for centuries. And you can still exchange precious metal for an equivalent amount of goods.
However, society has become so used to generating money out of thin air that a lot of people don't recognize gold's value anymore, viewing it as anachronistic and outdated in our era of digital money.
Consider this, though: the money we use today has value only because a sovereign body (state and the central bank) say that it does. Fiat money's value is constantly diluted by printing more money. This allows people to borrow money and buy things that they otherwise wouldn't be able to buy. If this process continues unabated, sooner or later you'll see an extra zero on banknotes.
As for inflation, central banks present it as a natural part of the modern monetary system, claiming that a low positive inflation rate helps economic growth. But this sort of short-term thinking eventually leads to a drop in money's purchasing power. At some point, the state can update the currency and announce that it's now fiat money – or remove a couple of zeros from the old one.
Eventually our system of paper money will self-annihilate. Future generations might find hidden Krugerrand gold coins or bars – but today's banknotes will have strictly museum value. This is truly something to think about.
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