"Is Gold Money?" This simple, yet important, question was asked to current Federal Reserve Chairman, Ben Benanke last month during a House Financial Services Committee Meeting on June 13th, 2011 (watch around 4:30)
The market is trending toward the reality that gold is in fact Money.
Of course, this question must be followed with other fundamental questions, "What is Money?" and "How do you define money?"
If one is to define money as a legal medium of exchange, then no gold is not legally recognized as money. Governments prohibit the use of gold (and silver for that matter) from being a legal means of exchange through legal tender laws. Basically, these laws say transactions can only be conducted through legally approved paper money and coins issued by a government or central bank.
History has proven that when Governments are given monopoly (legal) privilege to issue the coin and currency of a nation, the government will eventually debase the physical metal of the coinage and/or expand the money supply without limit. This act is done since a limit exists to the amount of taxation and deficit spending a nation will pursue. But, the manipulation of the money is without question the most insidious effect on a people since it robs people of their purchasing power and is basically a form of mass wealth confiscation and redistribution.
While this has gone on for centuries, the 20th Century is riddled with evidence of central banks pursuing this policy.
For example, in the U.S. a U.S Quarter minted before 1965 (which contains 90% silver) could today buy essentially 2 gallons of gasoline (@$3.50 per gallon). Yet, a quarter minted this year (consisting of about 5 grams of copper) can only buy 1/14th of only 1 gallon. And, a dollar issued today is worth 1/100th what could purchased for that amount in 1913.
Governments and central banks will always have an incentive to inflate and devalue the currency given its special monopoly privilege to dictate what should and should not be “money”.
Money is a universal medium of indirect exchange. Gold and silver have been proven to be the market chosen money for thousands of years for specific reasons. Fortunately, people are waking up to these facts. They are slowing increasing their demand to acquire and hold gold and silver as the one true and universal money. Sadly, governments are likely to prevent this reality from happening without a firm grounding in sound economic reasoning and a loyalty to individual liberty, contract/property rights, and sound money.