The trouble with gold.

Libertarians and survivalists commonly assert that gold is 'real' money because paper currencies are no longer backed by gold. Is this really the case? Why is the value of gold so real anyway? You cannot eat gold or use it in any direct way at all. The only thing you can do with gold is to exchange it for other goods and services. In other words gold is simply one other currency among many others.

There are two main reasons why gold is more trusted than US dollars for example. One of these is that gold is hard to dig up and so the market is unlikely to be flooded with new gold. The same cannot be said of dollars because these can simply be printed if the government finds itself insolvent. The US government is not even the only government that prints dollars. North Korea and (possibly) Iran are also churning them out as fast as they can. Gold is also likely to remain valuable because it has great emotional appeal. Every culture that has come across gold has accepted it as a store of value eventually. Almost all of the gold that has ever been mined is still in existence. The gold in your watch may very well have been used to pay some roman centurion. The emotional appeal of gold is so great that it is sure to remain valuable.

So.. if we accept that gold is an inflation resistant currency- what is the problem with it?

Gold is only useful for long slow disasters (such as hyper inflation, political tyranny and the like). It is of limited use while the official currency remains valuable. In fact it can even get you killed if you become known as the man who keeps sacks of gold under his bed.

Most disasters are severe but short and local in nature. This is true of floods, hurricane and earthquakes as well as terrorist attacks. If traders will not accept dollars or pounds they are more likely to request water, petrol or shelter than gold. Your best resource is likely to be a wad of banknotes because electronic payment systems are likely to fail. Gold will only become useful as a currency once the existing order has collapsed utterly. Let us be realistic. If this occurs, half of us will be dead and the other half will envy them. We will probably do better with a quantity of canned food and some good friends.

Friendship is the most useful survival resource of all. There is nothing kittens and rainbows about this. The people who can form alliances will survive and the loan wolves will perish. I would rather have a good friend in a crisis than a bag of gold when I am surrounded by enemies.

Gold does have its uses- it is a hedge against inflation and is also good for avoiding government scrutiny- but it is one survival tool among many.