Submitted by BullionStar.com
A popular phrase in segments of the mainstream financial media is that
“You Can’t Eat Gold”. We don’t know who first uttered this comment, but it
was more than likely a talking-head or Wall Street analyst on CNBC or
Bloomberg.
The disparaging claim seems to be based on concluding that in a financial
or monetary crisis, if you own gold, that “You Can’t Eat It”. And so,
according to the logic of whoever came up with the phrase, this would make
gold useless during a financial crisis.
In addition to the misleading and irrelevant nature of the comment, which
we will discuss below, the claim that “you can’t eat gold” is actually
factually wrong. And that is because you can eat gold. And also drink it.
Eating and Drinking Gold
While gold can be eaten, it cannot be digested. But it is non-toxic to the
human body. And it does not react chemically in the human body. That is why
gold can and does appear safely in a number of foods and drinks, not
surprisingly foods and drinks which are predominantly at the luxury end of
the market.
Some readers will have heard of Goldschläger, a Swiss/Italian liquor which
has flakes gold suspended within it. On a similar note, a Swiss gin called ‘Studer
Swiss Gold Gin’ also contains flakes of gold. Staying within Switzerland,
you can also buy edible gold products including “Swiss chocolate truffles
with gold flakes”. Not to be outdone by the Swiss, the Emirates Palace
Hotel in Abu Dhabi (United Arab Emirates) offers a ‘Palace
Cappucino” which is sprinkled with gold flakes.
In Selfridges department store in London, you can buy a “billionaires
soft serve” ice cream cone topped with both sprinklings of gold leaf
and a gold leaf covered flake. While in New York, in Manhattan’s Upper East
Side, a high-end restaurant offers a "Golden
Opulence Sundae” topped with gold leaf, for US$ 1000 a glass. Back in
England, a specialist cheese producer in Leicestershire created
Britain's most expensive cheese - "Clawson
Stilton Gold", a stilton cheese interwoven with edible gold leaf and
shot-through with gold liqueur. These uses of gold in food and beverages
illustrate that gold is a sought after and prestigious substance, but also
that gold is real, that gold is tangible and that gold is of value.
Wall Street's Selective Focus
The logic of the “you can’t eat gold” comment, as well as being wrong, is
also flawed. Because by extension, you can’t eat any of Wall Street's
favorite investment assets. Imagine chewing on financial securities or fiat
currencies. But whoever coined the phrase “you can’t eat gold” conveniently
failed to mention this on CNBC. We would challenge anyone, especially CNBC
and MSNBC, to eat share certificates or bond certificates or the electronic
equivalent thereof.
Nor can you eat the electronic coins of cryptocurrencies such as Bitcoin,
Ethereum’s Ether or Litecoin. Real assets such as art, antiques, real estate,
agricultural land, or vintage cars are also off the menu. A possible
exception is that can drink an expensive investment wine collection, but would
you really want to do this, as then you would be consuming your principal
investment?
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Wall Street analysts fail
to mention that you can't eat stocks and ETFs
Gold's Many and Varied Benefits
But beyond the fact that you can in fact eat gold, and that Wall
Street never points out the non-edibility of stocks and bonds, there are many
beneficial reasons to buy and own investment grade physical gold of which we
recently pointed out in 28
reasons to buy and own physical gold. What we are talking about is
real physical gold in the form of gold bars and gold coins. This is
true both during times of financial crisis, and also over the long-term as a
form of investment and savings.
Gold is without doubt the ultimate safe haven asset. In times of financial
crisis and turmoil, investors and savers flock to gold as a wealth
preservation strategy. The reason for investing in gold during times of
crisis is based on the fact that investors instinctively know that the gold
price behaves differently to the prices of other assets, particularly during
crises. This is because the gold price moves independently of economic and
business cycles.
In times of war and social upheaval, physical gold's benefits also come to
the fore. Since gold has a high value to weight ratio, significant personal
wealth can discreetly be carried in the form of gold across borders and
frontiers and within areas of conflict.
Since gold is a universal money supported by a highly liquid global
market, it will always be accepted everywhere at the going gold price. Gold
can easily be sold. Gold can easily be traded or even bartered with,
especially in non-functioning economies where the local paper currency has
collapsed or has become worthless. The fact that gold coins are regularly
issued to elite military personnel in areas of conflict attests to gold's critical
benefits in times of monetary crisis and localized economic collapse.
Gold as Store of Value
But gold is not just of use during financial crises. It is also an
essential asset to own over the long-term as a strategic form of saving and
investment. Physical gold retains its purchasing power over long periods of
time. This is in contrast to fiat currencies issued by the world's central
banks, which generally lose most of their purchasing power over time. In
other words, gold is a great hedge against inflation, as the gold price
adjusts upwards to offset inflation. The gold price even adjusts to inflation
expectations, hence it is sometimes called an inflation barometer and is
watched like a hawk by central bankers because the gold price signals future inflation.
Physical gold is also an asset without counterparty risk. This is because
when you own physical gold in the form of gold bars or gold coins, there are
no counterparties. In other words, the physical gold that you own outright is
no one else's liability. Nor are there any governments or central banks
involved in issuing gold, or in trying to increase and debase its supply.
Gold also lacks default risk, because it cannot default.
Physical gold is also inherently valuable because it is a scarce precious
metal that is difficult and costly to mine and refine. Gold's price will
never go to zero because it has a finite and significant production cost.
Physical gold is difficult to counterfeit, impossible to create artificially,
and cannot be debased.
These are just some of the reasons for buying and owning physical gold.
Please see BullionStar's recent article"28
Reasons to Buy Physical Gold" for a list of reasons why you
should consider buying physical gold.
Gold in Zimbabwe & Venezuela & South Korea
In the real world, owning physical gold can be of critical importance in
scenarios where trust in a nation's money supply has evaporated, such as is
currently the case in Venezuela or Zimbabwe.
Gold can also be of critical importance when entire nations suffer
economic shocks. A case in point is the interesting experience of
South Korea during the Asian financial crisis that swept the region in the
late 1990s. This crisis left the South Korean economy severely impaired, with
it’s currency, the Won, collapsing against the US dollar.
In addition to a bailout by the International Monetary Fund, the South
Korean government also launched a patriotic campaign in early 1998 to
actually collect physical gold from the South Korean citizens which was then
sold on the international market to raise much-needed foreign currency. This
collective campaign was pursued precisely because the South Korean government
understood that gold is a high-quality liquid asset that has substantial
value.
National Mobilization of Gold
By mid-March 1998, the South Korean citizenry had donated more than 220
tonnes of gold, worth over US$2 billion, in the form of investment gold coins
and bars, and other gold in the form of rings, jewelry, and gold medals. More
than 3 million households were said to have contributed. This collective
mobilization of gold to overcome a nation's economic adversity and raise
financing is a great illustration of how gold comes to the fore in a time of
crisis, due to its store of value, safe haven, and high liquidity
characteristics.
In conclusion, knowing the many compelling reasons to buy and hold gold,
and how gold can sometimes be a lifeline in a time of crisis, the claim that
"you can't eat gold" is exposed for what it is, misguided and
disingenuous, and shows either ignorance on the part of the people who use
it, or more likely, a deliberate intention to mislead and deceive.
This article originally appeared under the same title on the BullionStar.com website.
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