Don't Let The Glitter Hypnotize You

As fear grows of looming inflation, many are saying that gold is a great way to protect your wealth. Just ask Ayn Rand or Ron Paul. There are even commercials on TV now encouraging people to invest in gold - before it's too late! That's all rubbish.

 

One particularly strong proponent of buying gold is economic commentator Peter Schiff. He lays out the typical argument in his market outlook from his firm's website:

In a world in which fiat money-substitutes are continually debased by governments around the world, we believe that gold remains the most honest and accountable form of money. When financial uncertainty abounds, it becomes increasingly important to hold assets with value that cannot be diluted by government monetary policy. Gold has been chosen as a store of value and unit of exchange since the dawn of civilization due to its inherent properties: rarity, durability, fungibility, divisibility, and portability.

Ultimately, as the current crisis runs its course, the value of a gold-based monetary system may once again gain favor with productive nations looking to safeguard the value of their savings. In such a scenario, gold would spike in value as central banks became net-acquirers of gold, rather than net-sellers.

On what planet does anyone really believe that a gold-based monetary system could return to productive nations? That seems like wacko doomsday talk to me. It's hard to even begin to imagine the amount of gold that would be necessary for that to work. Do you really see nations - especially like China, Brazil and India, who are becoming increasingly important in the world economy - suddenly embracing a gold standard?

Then there are the economic consequences. If all currencies were pegged to gold, then you would no longer have floating exchange rates, which virtually every legitimate economist will tell you are essential to efficient international exchange.

The strongest criticism I see against buying gold, however, is that it's just another commodity. As a result, it's subject to market whims just like other commodities. A giant gold mine is discovered in Siberia? The value of gold decreases. A deep recession leads to people buying less jewelry? The value of gold decreases. Platinum becomes a stronger preference for wedding bands? The value of gold decreases. Gold, like every other commodity, cannot hide from supply and demand shocks in the market.

If you are worried about cash and want to invest in a commodity, then go for it. But why gold? Sure, it's shiny and pretty. But so are diamonds. And so is platinum. What makes gold so special? As far as I can see, just the rhetoric behind it.

Presented by

Daniel Indiviglio was an associate editor at The Atlantic from 2009 through 2011. He is now the Washington, D.C.-based columnist for Reuters Breakingviews. He is also a 2011 Robert Novak Journalism Fellow through the Phillips Foundation. More

Indiviglio has also written for Forbes. Prior to becoming a journalist, he spent several years working as an investment banker and a consultant.

A New York City Minute, Frozen in Time

This wildly inventive short film takes you on a whirling, spinning tour of the Big Apple

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register with Disqus.

Please note that The Atlantic's account system is separate from our commenting system. To log in or register with The Atlantic, use the Sign In button at the top of every page.

blog comments powered by Disqus

Video

A New York City Minute, Frozen in Time

This short film takes you on a whirling tour of the Big Apple

Video

What Happened to the Milky Way?

Light pollution has taken away our ability to see the stars. Can we save the night sky?

Video

The Faces of #BlackLivesMatter

Scenes from a recent protest in New York City

Video

Ruth Bader Ginsburg on Life

The Supreme Court justice talks gender equality and marriage.

Video

The Pentagon's $1.5 Trillion Mistake

The F-35 fighter jet was supposed to do everything. Instead, it can barely do anything.

More in Business

Just In