When (if) gold retakes its rightful place as money, no doubt the price will rise on account of monetary demand, but that does not imply that the price today is controlled by commercial demand. You have built a false dichotomy; use as commodity and use as money are not the only functions gold can serve.

You are quite correct. The recent multi-year rise in the dollar price of gold is only partly the result of the past increase in the supply of dollars, but is mostly an increase in the investment hedge demand against the expected future increase in the supply of dollars. It is unlikely that true non-monetary demand has played a significant role.

If and when gold resumes its role as money, there will no longer be any investment demand for gold except to the extent that people believe that a new gold standard will not endure. Holding actual money, in any form, is always a sacrifice of both potential consumption and investment, balanced against the need to be prepared to deal with an uncertain day to day future.

Regards, Don

I am not sure I follow your argument here. Did you mean to also distinguish investment demand (*). I realize that, technically, gold is not an investment, but the major driver of the price of gold today is precisely investment demand. When (if) gold retakes its rightful place as money, no doubt the price will rise on account of monetary demand, but that does not imply that the price today is controlled by commercial demand. You have built a false dichotomy; use as commodity and use as money are not the only functions gold can serve.

(*) Think of investment demand as any non-commercial demand that is not monetary – investment, hedging, etc.

This exposes a serious fallacy of understanding. As Entrenched perception on the value of paper money explained, when Murphy is saying that, he is in effect,

… the implication is that we are calibrating the value of gold in terms of units of fiat paper money

The moment we calibrate the value of gold with fiat paper, then gold is not functioning as money. Rather, when we calibrate the value of fiat paper money with gold, then it is fiat paper that is in an “unending monetary roller-coaster ride.”

However, gold is likely to become the anchor of monetary credibility just like before, should tender laws be abolished. The first action should be to abolish the ban of private money. The rest will take care of itself.

A simple start would be to support allowing competing money. I think Ron Paul has a chance of making that point with his new found campaign money. And it can be explained in 30 seconds. Why can’t Liberty create gold backed dollars in competition with US government backed dollars.

Ed