Gold Up As Athens Burns

Gold is up slightly this morning after Greece’s parliament passed strict austerity measures that would insure the bailout money would be there to avoid default. The Greek citizenry celebrated the good news by setting fire to Athens and vowing to throw out the current government.

The gold market remains largely unconvinced that Europe is getting better. Gold was up slightly this morning as the euro gained ground against the dollar, pushing commodity prices higher in step with currency valuations. Gold was up $1.60 on light volume to $1,726.90 an ounce. Silver was down $0.07 to $33.73.

In the U.S. this chart from Credit Suisse has been making the rounds, showing the reason that you’re feeling poorer is because your cash has steadily been losing purchasing power since the 1970s.

Some people have been using that chart as evidence that government should be moving back to the gold standard for our currency, but that would be a really bad idea. There are so many factors that can influence the price of gold that using it as a currency standard these days would turn every transaction into a giant variable dependent on gold prices. Imagine getting a paycheck of $500 of the new gold standard dollars, then the next week your check would be $350, or maybe $400, or $200. Imagine every transaction in your financial life was just like that. Your cell bill might be $90, or $80, or $110 depending on the price of gold. Do you think your employer and vendors would always give you an honest break on the exchange rate? Guess again.

That’s why we got off the gold standard in the first place. The price of gold spiked in the 70s and foreign countries like France, that were not on the gold standard, were bringing truckloads of dollars here and demanding gold in exchange. We were taking a pounding and Nixon said enough was enough.

The irony is that, even though it’s a not a great idea for us to use gold collectively as a currency standard, it’s a really good idea to hold it as individuals. Then those price fluctuations work to your advantage instead of throwing your financial life into turmoil. It also gives you a benchmark that holds some value loosely relative to the purchasing power of whatever passes for paper currency at the time.

Inevitably someone will point out to me that gold is not fungible; you can’t go to the gas station and exchange gold for gasoline or go to the store and buy groceries with it. So what? No commodity is conveniently fungible. You can take your gold and silver to any one of a number of places and convert it to currency a lot easier than you can take your wheat, soy beans and crude oil and exchange them for dollars.

While it would be convenient to be able to spend gold like cash, that is not necessary for you to get the benefits.