Gold used as money

Because of its rarity, gold imposes scarceness, which is what occasionally makes it useful as money. However, historical precedent indicates it is not always in politicians' interest to keep money scarce. Whether or not a physical manifestation of money, in the form of bullion, is a desirable thing is open to debate at any given time. But if a monetary material of reliable scarceness is desirable then gold is still as appropriate as ever. The investment question concerning gold is not whether or not it reliably imposes scarceness, which it does, but whether or not such reliable scarceness will in the future be required by savers.

Because the significant majority of people currently believe that governments and central banks have sufficient skill to manage the supply of money gold's use as a monetary material has waned, especially over the last 70 years. This is a regular pattern. Gold will quietly slip into the background when paper money becomes widespread because, as the famous Gresham's Law says "bad money drives good money out of circulation". But part of the mystery of money concerns gold's cyclical re-appearance, which the following section aims to explain.