Monday, January 3, 2011

Gold Is Money

Global Currency
All of today currencies are fiat currencies. Fiat currency is defines as not represent 
anything tangible but are only worth something due to government decree 
(namely legal tender laws). In the book "Principles of Economics" written by
N. Gregory mention that Fiat money, such as paper dollars, is money without 
intrinsic value: 

It would be worthless if it were not used as money."
"We have gold because we cannot trust Governments." -          President Herbert Hoover
On the other hand, gold are the currency which not created and controlled by governments. 
Gold was once the main currency in most of Europe, Asia and Americans for the past few 
thousand years which up to 1971. Gold which evolved independently as money in the word's 
main civilization due to the following reasons:
1.  Rare
The amount of mined gold has increased only slowly, rarely more than 2% per year. 
2. Durability
Gold won't rot, break, crumble, decay, corrode or tarnish. Gold is unaffected by 

air, water, and even most acids.
3.  Compact
If all the gold ever mined were made into a single cube. Its edge would be 
20 meters. Not quite enough to cover a single tennis court.
4.  Divisibility
Easily reshape it, flatten it, and divide it into tiny pieces.

"The modern mind dislikes gold because it blurts out unpleasant truths."
- Joseph Schumpeter (1883 - 1950)

From 1934 to 1971, government currencies were backed by gold. 
This defined which at any time, you able to exchange a unit of any of the world's main 
government currencies for a prescribed amount of gold. 
For an example, you could exchange 35 US dollar for one ounce of gold. 
But in 1971, President Richard Nixon abandoned the Bretton Woods Agreement,
devalued the dollar, raised the fixed price of gold fictitiously to $37.50, and slammed 
shut the gold window to stop an international run on the U.S. gold reserve. 
This is when the fiat currency started.

Examples of other fiat currencies include:
1.   Chinese bark currency (notes printed on tree bark, as recorded by Marco Polo), 
1260 - 1360. One of the earliest fiat currencies, ended in hyperinflation.
2.   Banque Royale Notes in France, the ‘Mississippi system' 
(designed by John Law).
 Issued in 1716. Collapsed worth nothing by 1720.
3.   Continental bills, printed by the US Congress during the American Revolution. 
Began issue in 1775, shrank to 1/40 of their original value by 1780. 
Hence the saying ‘not worth a Continental'.
4.   Assignats in France during the French Revolution. Issued 1790-1796,
 collapsed to 1/600 of their original value by 1797.
5.   Marks in Weimar Germany, after WWI. Issued from 1919 to 1924, 
collapsed to three trillionths of their original value. 
This was the currency that was carried in wheelbarrows towards the end. 

Hence from an historical perspective, the only question is how quickly the 
US dollar loses value, not whether it will continue to lose value. 
Until the 1971, a US dollar was worth 1/35 of an ounce of gold. But right till today 
the gold is about 1/1000 of an ounce of gold 
Another example, in Vietnam, gold plays an important role 
in the purchase of a home. From the moment a buyer and seller agree on a 
price to the day the paperwork and sale are completed takes a month or longer. 
During this time, the value of the Vietnamese currency may have fallen sharply, 
as the current rate of currency depreciation in that country is very rapid. 
Accordingly, the buyer will arrange financing with a bank not in terms of the Vietnamese dong,
but in gold, which holds its value in terms of purchasing power. 
This arrangement means the buyer will still have enough to pay the agreed price 
when the sale is consummated (

Sunday, January 2, 2011

About Gold

The Precious Metal Gold

“We have gold because we cannot trust Governments.” President Herbert Hoover

Gold Characteristic

Gold is a chemical element which can only be found and not manufactured. 
Gold is known for its rarity, softness, density and good in electrical conductivity.   
Until today, a total of 161,000 tonnes of gold have been mined in human history, 
as of 2009 (National Geographic: "The Real Price of Gold" by Brook Larmer).
This is roughly equivalent to 5.175 billion troy ounces.
The following are some gold's characteristic:

Chemical symbol: Au
Atomic no.: 79
Atomic weight: 196.967
Specific gravity: 19.32
Tensile strength: 11.9
Melting point: 1,063 degree
Hardness (Brinell): 25

Karat Gold Conversions

Karat is a measurement of the purity of gold in an alloy. 
Each karat represents a ratio of 1/24 ­purity, indicating how many parts out of 24 are pure. 
Therefore, 24 karat gold is pure, while 18 karat gold is ¾ gold and ¼ alloy
(Dictionary of international trade: handbook of the global trade 
community by Edward G. Hinkelman).

Below are some example common used in bullion: -
24-karat = 0.995 to 0.000 pure (fine) gold
22-karat = 0.916 pure (fine) gold
18-karat = 0.750 pure (fine) gold
14-karat = 0.583 pure (fine) gold
10-karat = 0.4167 pure (fine) gold

Source: The ABCs of Gold Investing "How to Protect and Build Your Wealth 
With Gold" Second Edition - Michael J. Kosares

 Gold Weights and Measures

By tradition gold is quoted and traded in troy ounces, these having been adopted 
by the U.S. Mint for the regulation of coinage in 1828. 
Unlike 'normal' pounds and ounces there are 12 troy ounces to the troy pound rather than 16.  
But a troy pound weighs less than in imperial pound (0.82 British/US pounds). 
Cutting through all that nonsense a troy ounce is approximately 0.031kg or 31 grams. 
The following gives an approximate conversion between traditional and metric weights.
         Troy Ounce                 Kilograms             Grams      
 1 0.03110431.104
 12 0.37325 373.25
 32.150 1.0001000 

Sources: (