When you own gold and hold it in your hand, you possess something of real value. You can buy or sell gold coins or bullion in any country in the world for the spot price of the day, or hour.
That’s all well and good for as long is the promise is kept. And I’m not suggesting that the promise will be broken completely. The government isn’t going to turn around and say it has changed its mind and that your $20 bill is no longer worth anything.
But bad things can happen to the value of that promise.
Inflation can dramatically cut into the buying power of that $20.
The value of the U.S. dollar on world markets can go down and reduce the value of that $20 when you buy imported goods.
Also, as we have seen in recent years, the value of that promise can take a huge hit when people on Wall Street behave badly or dishonestly.
I’m not suggesting that you abandon cash, or that other “promise to pay” – investments in stocks and bonds.
But you would do well to secure a proportion of your wealth in the form of gold. When you buy gold you are not only buying something of real and lasting value, but you are also buying something that tends to go up in value when those $20 promises are broken or lose their value.
Gold is a perfect hedge against broken promises simply because its value rises when the value of promises goes down.