Gold Is Not Money

February 23, 2009 | By: Tim Iacono

Don't get me wrong, gold has been my favorite asset class for most of the last decade (for good reason) and it is the single largest non-cash holding in both my personal accounts and in the model portfolio at Iacono Research, but it grows tiresome to hear people say "Gold is money" because it is decidedly not money.

At least not today.

Well, technically, maybe gold is money today, but, you have to be very careful about how and with whom you use it because you might be in for quite a surprise if you don't properly understand its real value.

More on that in a minute.

Consult any mainstream dictionary and you'll find that the key characteristic of "money", the characteristic that gold fails miserably at these days, is as "a medium of exchange".

Some examples are shown below:

Merriam-Webster
1: something generally accepted as a medium of exchange, a measure of value, or a means of payment: as a: officially coined or stamped metal currency b: money of account c: paper money
2 a: wealth reckoned in terms of money b: an amount of money c: plural : sums of money : funds
3: a form or denomination of coin or paper money

Dictionary.com
1. any circulating medium of exchange, including coins, paper money, and demand deposits.
2. paper money.
3. gold, silver, or other metal in pieces of convenient form stamped by public authority and issued as a medium of exchange and measure of value.
4. any article or substance used as a medium of exchange, measure of wealth, or means of payment, as checks on demand deposit or cowrie.
5. a particular form or denomination of currency.

There's lots more at OneLook which, apparently, is a dictionary aggregation site (didn't know there was such a thing) and of course at Wikipedia.

The point here is that gold is not a medium of exchange for about 99.999 percent of the world's population (not that it shouldn't be) and, for that reason alone, it is not money in the truest sense of the word.

Anyone saying that gold is money is probably just expressing a desire to see it function as money once again (not that there's anything wrong with that).

But, as noted above, technically, gold is money in one sense.

For example, you can take a one-quarter ounce gold coin to a bank and deposit it in your account, at which time they will (perhaps with a little help from a supervisor since most tellers have not likely ever had this request before) credit your account the whopping sum of $10.


Or, you could walk down to the local coin shop and get $265 for it.

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