ValueWalk

Gold Isn’t Money

I drive men mad for love of me.

Easily beaten, never free.

What am I?

Why, you’re gold, of course.

Indeed, the metal is many things to many people. But one thing it’s not: money.

istara / Pixabay

That comes as a surprise to some people.

Over the years, in reader letters about acquiring, transporting or storing gold, I’ve noticed that many folks assume gold to be money. From that they extrapolate to all sorts of false conclusions about how they should manage their ownership of the metal.

Some even miss out on major opportunities as a consequence.

Gold isn’t money … and that makes an enormous difference when it comes to wealth management strategies…

What’s Money … and Why Does It Matter?

Those of you with an interest in bitcoin probably know about the long-running debate over whether the virtual currency is a form of money or a nonmonetary asset.

Government agencies, the IRS and the courts have all grappled with this issue from time to time. It’s important for several reasons … all of which apply equally to gold bullion.

Money — currency, a legal tender issued by a sovereign authority like the U.S. government, including face-value gold coins — isn’t regarded as an asset. It’s just a store of value, a unit of account and a means of exchange.

Because governments issue money, governments have a unique interest in keeping tabs on it … such as when you take it into or out of the country, or store it in a foreign financial institution, or use it for a large transaction. That’s why they impose such stringent reporting requirements on it.

On the other hand, governments don’t normally tax appreciation in the value of money. If you have an account denominated in Swiss francs and its value increases vis-à-vis the dollar, boosting its buying power, it’s not considered a capital gain.

The same would apply to bitcoin, or gold, if they were considered forms of money … hence the debate.

The Bullion Advantage

But bullion gold — gold that hasn’t been minted into legal tender coins, which is treated as money — is an asset, not money, and that matters … a lot.

Let’s review some of the key differences.

The Universal Asset

Looking at gold bullion as an asset rather than a financial instrument illuminates its role in wealth management strategies.

Lots of people speculate successfully on price movements in gold. Some even invest in funds like the SPDR Gold Trust (NYSE Arca: GLD). (Although that doesn’t count as owning gold in my book — it’s just paper.)

But by far the bulk of the world’s gold bullion is doing precisely what assets should do in any smart wealth-management strategy: storing value securely over the long term as a hedge against the slings and arrows of markets in financial instruments such as stocks, bonds and the like.

Gold bullion is the ultimate “set it and forget it” strategy. If you haven’t “set it” yet by accumulating some of the yellow metal that “drive[s] men mad for love of me,” now’s the time to start.

Kind regards,

Ted Bauman

Editor, The Bauman Letter

P.S. Another avenue for adding physical gold to your portfolio is the EverBank non-FDIC insured Metals Select® Allocated Account. It’s a great way to increase your own economic power. It allows you to purchase specific coins and bars, and it’s even IRA eligible (gold and silver American Eagle coins only).

For the sake of full disclosure, we receive a marketing fee based on our relationship with EverBank. But, honestly, we’d work with them regardless.