What Qualifies Gold & Silver as Real Money?

precious metals, money, value, worth, fiat, cash, My Gold Advisor, Damion LupoQ: Why is gold and silver inherently valuable as money?

A: There are five qualifications a commodity must meet in order to qualify as true money, and gold and silver have all five:

  • Scarcity – the item must be naturally scarce.
  • Durability – the item must be naturally stable and maintain its physical structure and condition without being degraded over time.
  • Portability – the item must be easy to transport.
  • Fungibility – the item must be capable of mutual substitution with an identical item, meaning each individual unit of money can easily be swapped for another just like it.
  • Divisibility – the item must be able to be divided into equal reliable parts without losing the essence of it.

Silver and gold meet these five better than any other form of money or currency. Our current currency system—the U.S. dollar—meets the last four, but not the first one. Currency is not scarce in any way, because the dollar, the yen, the euro, etc. are simply made up out of thin air by a central bank. There’s nothing naturally scarce or valuable about them. Sounds a little like the Emperor’s New Clothes fable.

There are also three fundamental roles a commodity must fill in order to be considered money:

  • It must serve as a medium of exchange.
  • It must serve as a store of value.
  • It must be a unit of account.

Gold and silver rose into prominence in the free market environment and have been used as money for thousands of years. They’re both naturally rare, which is why they’ve been sought for jewelry as adornment for millennia. They’re extremely portable, able to be moved around with ease. They’re also divisible; one ounce of gold or silver is indistinguishable from another anywhere else in the world, which makes them interchangeable.