Investment: Precious metals as real money

As discussed quite often on this blog, the very root of the global economic fiasco we are witnessing today is the widespread culture of consumerism and entitlement that has gripped the developed world. And the thing that has enabled this fundamental root cause to grow and metastasize to the point where the vast majority of people unthinkingly believe that it is right and good to live as far beyond their means as at all possible has been facilitated by the type of money we use: our fiat currencies. This is why precious metals are the first investment we will look at here. Unlike the fiat currencies we use today, gold and silver are real money – money that people and countries actually have to earn before they can spend it.

For something to qualify as real money, it has to fulfill five criteria: it must be durable, divisible, consistent, convenient, and have value in and of itself. Let’s take a closer look at these five properties.

  • Durability is pretty obvious. Gold is a very good example because it practically lasts forever, while things like wheat or rice would never work as a store of value because they spoil relatively quickly.
  • Divisibility implies that you can slice something up without destroying its value. little pieces of gold have the same value per ounce as big pieces of gold, while little pieces of the Mona Lisa would be worthless compared to the whole Mona Lisa.
  • Consistency implies that value remains same everywhere in the world. Gold is again the perfect example, while the value of things like real-estate are highly dependent on location.
  • Convenience simply implies that it is easy to use in transactions. Gold is good because it concentrates value into a very small space, while base metals like lead or iron would be impractical because their value is simply not concentrated enough.
  • The final attribute, the fact that real money must have value in and of itself, is where gold trumps our modern fiat currencies. The paper money we use today only has value because some authority says it does. The paper it is printed on and the digital 0’s and 1’s it is stored as on your bank’s computers all have essentially zero intrinsic value.

This implies that fiat currencies are susceptible to something called counter-party risk. Counter-party risk is simply the risk of having the value bestowed upon these worthless pieces of paper eroded by things like the bad monetary policy and the downright fiscal irresponsibility typical of the developed world today. The counter-party risk with fiat currencies is called inflation (and eventually hyperinflation) – the process by which all fiat currencies are gradually devalued back towards their intrinsic value – zero.

This is the primary reason why any prudent investor would own some physical gold and silver. It is real, sound money that will preserve your purchasing power regardless of continued insanity of modern monetary policy. Go to and start saving some real money today.

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