Gold Is Money: Everything Else Is Credit

By Claudio Grass

2022.12.19

Throughout the better part of 2022 there has been one question that has consistently, and predictably, popped up in conversations with my friends, clients and readers. Those who know me and are familiar with my ideas are well aware of my position on precious metals and the multiple roles they serve, so I can’t blame them for them for being curious whether I still “stick to my guns” in this era of irrationality in the markets and the economy.

Especially for those not versed in monetary history, which is regrettably the vast majority of the population, it is natural to wonder: “If gold is such a great hedge against inflation, why hasn’t it skyrocketed now that inflation is finally here?”

Well, there are a couple of reasons for that, some more obvious than others. The interest rate hikes that the Fed spearheaded and repeatedly escalated are the most straightforward explanation. At least that’s the answer most mainstream economists and analysts will give you. And it makes sense: If gold pays you no interest for holding it, then why not switch to something that does? This is the mindset of most investors and that weakens demand, which in turn drags the price down. That’s how the theory goes anyway.