Store of Wealth?

Dicko
By Dicko on Tue, Mar 5, 2013 - 3:49pm

Hello Everyone

I have read quite a bit about Gold as a store of wealth but I just don’t understand one thing:

Say I use $170,000 to buy 100 ounces of gold in 2013. It’s now 2020 and the price of gold is $1200/ounce. I now want to buy a house worth with a price tag of $160,000 and need to sell my gold to finance the purchase. But I now only get $120,000 for my gold and I have to find the other $40,000 from savings or wherever. How in this instance is gold a store of wealth?

As we cannot directly purchase anything with gold isn’t its value intrinsically linked to fiat, as fiat is currently the recognised means of wealth transfer?

Dicko.

3 Comments

Ken C's picture
Ken C
Status: Platinum Member (Offline)
Joined: Feb 13 2009
Posts: 753
Store of wealth

Gold is a long term store of value (sov). This does not mean that fiat cannot have a short term sov along with its use as a medium of exchange.

The issue is that every fiat currency has always returned to its intrinsic of value of zero. Gold will not go to zero as a sov. As the fiat value returns to zero gold will go the other direction.

The situation you describe is a "trading" situation and not a "saving" situation. If you think you  may need some medium of exchange in the near term you had better keep some in addition to having gold as a LONG term store of value.

 

Poet's picture
Poet
Status: Diamond Member (Offline)
Joined: Jan 21 2009
Posts: 1891
Fiatania

You'e about to be dropped into a country called Fiatania.

In your briefcase are $170,000 Fiatanian credits. They could be used to buy any of a variety of different things.

You know that currently, $170,000 credits buys 100 ounces of gold. They also could buy a modest little house. You also know that the exchange rate of gold or houses or any number of goods to Fiatanians fluctuates.

What should you do if you know that you will need to buy a house in 7 years time?

You might consider buying a house as soon as you land and roll up your parachute.

What should you do if you find that you will need some gold in 7 years?

Consider buying gold instead.

What if you don't know the future?

Diversify. Buy some gold. Also invest in things that provide a return: whether they save you credits or earn you credits. Or in something that provides what credits can't buy, maybe at a time when credits buy nothing.

Poet

Dicko's picture
Dicko
Status: Member (Offline)
Joined: Jan 4 2013
Posts: 2
Thanks

Hi Guys

Thanks for your help, much appreciated. I have a plan now; we'll see how it goes.

Cheers,

Dicko.

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