Tuesday, August 6, 2013

What Are Precious Metals?

What Are Precious Metals?

Precious metals are elemental metals that have high economic value.  Metals are classified as precious because of their use in currency, investment, jewelry, industry and rarity.

Historically, precious metals were important as currency but are now regarded as investment and industrial commodities.  However, the most widely known precious metals have ISO 4217 currency codes:

Gold: XAU
Silver: XAG
Platinum: XPT
Palladium: XPD.

Precious metals are chemically less reactive than most elements, usually ductile, have a high lustre, and high electrical conductivity.  For example, Silver is the most electrically conductive and the most thermally conductive metal.

Rarity is a chief characteristic of precious metals. Rarity relates to the relative abundance of the element in the Earth’s crust and the relative difficulty of extracting it from ores.  Aluminium was considered a precious metal until modern mining techniques made it easy to obtain.

The fifteen precious metals listed in descending order by atomic number are: Beryllium (4), Gallium (31), Germanium (32), Ruthenium (44), Rhodium (45), Palladium (46), Silver (47), Tellurium (53), Rhenium (75), Osmium (76), Iridium (77), Platinum (78), Gold (79), Mercury (80), and Bismuth (81).  The Platinum Group includes Ruthenium, Rhodium, Palladium, Osmium, Iridium, and Platinum.  The precious metals are shown outlined in red in the Periodic Table.  

This table shows the relative abundance of the precious metals in Earth’s crust in Parts per Billion:


Wednesday, July 31, 2013

Is Gold Money?

Is Gold Money?

The question "Is gold money?" seems a topic of debate.   In a U.S. House Financial Services Committee Meeting on July 13, 2011, Congressman Ron Paul asked Federal Reserve Chairman Ben Bernanke – "Is gold money?" Chairman Bernanke answered, "No.  It's a precious metal."  Obviously, Congressman Paul thinks the answer is yes.  James Turk, founder and chairman of GoldMoney, claims "Gold is money!"

Who is correct?

James Turk says, "Gold is just a sterile asset.  It has no cash flow. It doesn't generate wealth.  It protects wealth. That's why it's money."  At an investment conferment in Munich in 2011, Mr Turk said, "Rather, gold’s usefulness arises from its reliability in economic calculation to determine the price of goods and services.  In other words, gold is money, and therefore is no less useful than other so-called non-productive assets like the paper banknotes and bank ledger entries that we call dollars, euros, yen and pounds."

Chairman Bernanke when on to say in answer to Congressman Paul, "I pay attention to the gold price.  But I think it reflects a lot of things.  It reflects global uncertainties.  I think the reason people hold gold is as protection against of what we call tail risks, really, really bad outcomes.   And to the extent that the last few years have made people more worried about the potential of a major crisis then they have gold as a protection."   Bernanke also said, "Well, you know, it's an asset. Would you say treasury bills are money?  I don't think they're money either, but they're a financial asset."

To answer the question "Is gold money?" we have to agree on a definition of money:  "Money is any object or record that is generally accepted as payment for goods and services and repayment of debts in a given socioeconomic context or country.  The main functions of money are distinguished as: a medium of exchange; a unit of account; a store of value; and, occasionally in the past, a standard of deferred payment. Any kind of object or secure verifiable record that fulfills these functions can serve as money." - Wikipedia.

Again from Wikipedia, "A medium of exchange is an intermediary used in trade to avoid the inconveniences of a pure barter system."

Gold is not currently used as a medium of exchange in any country.  Therefore, based on the definition of money above, gold is not now money.  Gold has been money in the past and could be in the future; but, strictly speaking, gold is not money.

Paul, Bernanke and Turk do agree on one thing: gold is a store of value and protection against risk.

Gold is Insurance.