Rick Rule: Gold Is A Store Of Wealth In A Mechanism Other Than Fiat Currency

Currencies have basically gone nowhere in the last year. Most major currencies have been in a decline, some have held up somewhat in a see-saw pattern, the British pound has held up most.




In Gold Is Always Rallying Somewhere, we explained that currencies cross rates are a zero sum game. Not every currency can go down against every other currency at once. But we know that governments are in a global race to debase their currencies in order to ease their debt burden. So the currency charts somehow “mask” the underlying tendency, which is an overall devaluation against each other.

The key question is what happens when all governments attempt to devalue their currencies.

That point was being raised in Rick Rule’s last market commentary (listen to the full commentary). Rick Rule is the founder and CEO of Sprott Global Resources Investments, s a full service brokerage firm providing personalized brokerage services to  investors in the natural resource and precious metals sectors for retail and institutional investors.

In his answer, Rick Rule confirms that gold by itself is a mechanism that resolves the imbalances between currencies. At least, that is the purpose it serves for currencies and the central bankers.

However, what gold does for individual human beings for 5000 years has been acting as a store of wealth aside of currencies. It is important to understand that a bond (i.e., a currency) is not a payment; it is a promise to pay, it is a mechanism to transfer wealth.

All precious metals (gold, silver, platinum, palladium) have fulfilled a role in society for thousands of years. They are not promises to pay, they are a store of value. Precious metals are a payment in and of themselves. As a consequence, they have performed a function of social insurance, which is an insurance against political and social catastrophe since the beginning of recorded history.

People should not think that the role of gold is only to move from one central bank to another (say from the US to the Chinese). That is gold’s use for currencies by the central bankers. YOUR use of gold is to preserve the purchasing power of yourself and your family through a variety of circumstances in some mechanism other than fiat currency.

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