Money has taken various forms over the ages. However, it has consistently fulfilled its primary economic functions. The three major economic functions of money include store of value (wealth accumulation), unit of account and a universal medium of exchange.
Two of the most common form include gold and cash savings of national currencies, such as the US Dollar (fiat currency). They both play an essential role in the current global markets.
It is almost impossible and impractical to live without cash availability, mainly because governments have established a set currency. One of the greatest advantages of cash over gold is legislative control, mainly due to the electronic transfer of value.
Regardless, gold still has multiple advantages over cash savings to store wealth and maintain a broad appeal. Below are the three major ways that gold bullion is still better than cash savings.
1. GOLD HAS LIMITED SUPPLY
Whether it is gold, silver, real estate, or oil, limited supply is among the top reasons to hold non-cash assets. Historically, governments constantly had and still have the urge to print more bills and debase a national currency. Most importantly, gold has constantly retained value over the years.
Gold’s value is strictly regulated by supply and demand and not any central government. Its supply is strictly limited to what miners can extract from the earth. Gold’s demand is multifaceted since it is valuable to several industries and investors.
Conversely, national currencies feature a bottomless supply. Unfortunately, unlike gold, printing a few colorful pieces of paper has become incredibly cheap and common. Additionally, the value placed on these papers can be changed at any minute by a central bank.
Therefore, if you want to store the value of your wealth, having gold bullion makes much more sense than saving your cash in a bank.
2. GOLD IS INTERNATIONALLY AVAILABLE
When it comes to cash, the US dollar is the only option that comes close to being a global international cash-based currency. The majority of central banks buy dollars to secure their independent fiat currencies. Unfortunately, walking around with dollars or storing lots of dollars in your bank may not get you far.
Cash currencies’ value tends to be limited within the country’s borders, except only because the government dictates and deems the paper valuable. Unfortunately, if a national economic crisis affects the economy, the government, and the decreed cash value, your stored cash savings will be at risk of lacking value.
On the other hand, gold differs entirely in its nature and value. Gold lacks any central bank or issuing authority. The gold bars are a liquid form of stored wealth regardless of where you are. For instance, an Austrian Gold Philharmonic still carries value outside Austria, just like the American Gold Eagle coin carrying its value out of America.
Gold is still gold. However, you ought to find a suitable and innovative way to carry your gold around wherever you go. Rest assured, gold bullion value will never disappear no matter where you go.
3. GOLD IS PROTECTED FROM CREDIT RISK
To understand and appreciate this advantage of gold over cash, here is a quick breakdown of _fractional reserve banking;_
When you store your cash in the bank, the bank puts the money into a demand deposit account, allowing you to withdraw funds again at your convenience. Contrary to popular opinion, the bank does not keep the money. It lends the money out to individuals and institutions.
Banks are legally required to strictly keep 10% of all demand deposits in their vaults and can lend out the remaining 90%. Once the debtor receives the cash, two parties have a legal claim to that money. Subsequently, two outcomes are not suitable for cash but ultimately favor gold.
It creates more cash instantly (multiplier effect), which could potentially lead to a reduced value of money
It puts your current/checking account at the mercy of the bank’s lending practices. Banks tend to crumble due to poor lending decisions, meaning you might not have access to your deposit anytime. (however, the Federal Reserve guarantees your demand deposit up to a certain amount. Unfortunately, the government has also outlawed bank runs. Regardless, such options merely reduce your chances of losing your cash but do not eradicate them).
On the other hand, gold is free from crediting. It is strictly stored in a vault at a precious metals depository, safe and secure from the manipulative hands of Federal Reserve Policy and banks.
In a nutshell, physical gold continues to retain its value, unlike cash savings or paper gold which makes it one of the best ways to invest in gold. Moreover, physical gold is internationally recognized and accepted as a universal currency. Finally, it is free from the unhealthy lending and crediting habits that banking institutions subject cash to.