Gold

Gold is money.  It is divisible.  You can divide it into coins, or re-melt it into bars, without destroying it.  Also, gold is fungible, where each unit of 995 fine gold (99.5%) is similar enough to another unit so as to be easily interchangeable. Gold is also nearly impossible to counterfeit, as genuine gold is easily recognizable. When measured by weight, gold is easily countable, and verifiable.  These properties make gold an excellent unit of account.

Gold is money. Gold is not subject to decay, rot, or rust. Gold has a intrinsic value, because it is rare, highly coveted the world over, and is a luxury item.  Gold has also become more and more important as an industrial metal especially for technology applications.  Because of its rarity and durability, gold has been almost universally acceptable as money for thousands of years.  As an example, in ancient Rome for an ounce of gold you would be able to purchase a very fine toga, a hand crafted belt and a pair of sandals.  Today that same ounce of gold would buy us a fine suit, a hand crafted belt and a pair of shoes. Comparatively, the U.S. dollar in recent years has lost about 40% of its purchasing power.

Gold, as an investment, is typically viewed as a financial asset that will maintain its value during times of political, social, or economic distress.  As such, gold can provide individual and institutional investors alike with a portfolio safety net against sharp downward spikes in complementary assets such as stocks and bonds. 

Gold reserves in Russia were recently raised from 5% to 10% when the Russian central bank decided to increase its foreign reserves. Russia’s reserves have surged to $247 billion – the world’s fourth largest.  Accomplishing the shift to 10% gold is requiring the purchase of 21 million ounces of bullion, which is about one-quarter of the world’s annual mine production.  With Russia’s oil exports, it is accumulating additional foreign currency reserves at a rate of about $100 billion dollars per year.  With their currency reserves growing so rapidly, just maintaining the gold portion of their reserves at only 5% , much less 10%, will require Russia to absorb a huge piece of the world’s gold output.