Gold went down (as the muggles would measure it, in dollars). It dropped almost 40 bucks. Silver fell almost 60 cents. Since silver fell proportionally farther than gold, the gold-silver ratio went up.
Why do we keep reiterating that gold goes nowhere, that it’s the dollar which mostly goes down over long periods of time and sometimes up as in 2011-2015? Why do we insist that the dollar be measured in gold, and that gold cannot be measured in dollars the way a steel meter stick cannot be measured in rubber bands?
Some ideas are impossible to understand using the dollar paradigm. For example, gold is in the process of withdrawing its bid on the dollar. This will have devastating consequences, which the word “reset” does not begin suggest. If the dollar is money, then this assertion—gold bids on the dollar—is incomprehensible. However, if gold is money then that makes the dollar just the irredeemable scrip issued by the Fed in order to finance its purchase of Treasury bonds. Who would be eager to trade his money to buy such scrip?
Another example is that the gold-silver ratio (or gold-oil ratio or gold-DOW ratio) are just prices. If the dollar is money, it makes sense to look at the ratio of various prices in the market. Readers often ask if the gold-platinum ratio is signaling a buy. Well, if gold is money, then there is just a price of platinum. Is a cheap price of platinum necessarily a signal to buy? It could be a good speculation, or it could be that there’s a reason why this industrial metal is cheap.
Gold is not just a commodity. It does not go up and down. It is the closest thing that economics has to a constant. A wheel may not be perfectly round if you zoom in under an electron microscope, but it’s the best way to roll your car to work. Gold may not be perfectly constant, but it’s the best way to measure wealth, prices, and the value of all assets.
To say gold is money is a paradigm shift. It’s easy to say. It’s (relatively) easy to show. But it’s really hard to wrap your head around. Why? Because it goes against everything we’re taught.
