Deutsche Bank: Gold Is Money

Gold often gets lumped in to investment forecasts with other commodities – real, consumable things like oil or food.

But Deutsche Bank analysts say gold is seriously misunderstood and in a new report, wherein they update their gold target to $2,000 sometime in the first half of 2013, they explain that ‘gold is not really a commodity at all.’

The undisputable evidence for the case that gold is money is that it is a medium of exchange, one that is officially recognized by the world’s central banks who hold it as a component of their reserves.

And there’s more – the analysts differentiate between ‘good money’ (gold) and ‘bad money’ (fiat paper currency):

“In describing gold as such we refer to Gresham’s Law – when a government overvalues one type of money and undervalues another, the undervalued money (good) will leave the country or disappear from circulation into hoards, while the overvalued money (bad) will flood into circulation.”

Interestingly, all the arguments against gold (it’s not really a consumption good, it serves no industrial purpose, etc.) are the exact reasons why Deutsche Bank analysts call gold ‘good money’:

“Fiat currencies physically have no use other than that which is prescribed to them by government and accepted by the public. That fiat currencies cost little to produce is of a secondary concern and we believe, quite irrelevant to the primary purpose.”

“Gold is neither production good nor consumption good. Jewellery we see as a form of storage or hoarding (the people of Portugal have all but exhausted their personal gold stores—hoarded in the form of jewellery—having converted them to survive the crisis). If gold did have a meaningful commercial use we believe that it would make the metal less attractive as a medium of exchange as the value of the metal in whatever market it was used in could periodically interfere with its medium-of-exchange role…”

Other characteristics that are important in fulfilling the requirements for ‘good’ money: indestructibility, divisibility, transportability and universal acceptability

http://www.businessinsider.com/deutsche-bank-gold-money-2012-9

To read Matthew Boesler article: Deutsche Bank: Gold Is Money

Tagged as: Central bank, Deutsche Bank, Fiat money, Gold, Gold standard, Gresham, Gresham's law, Medium of exchange