In the current landscape of global finance, the use of commodity derivatives, particularly in gold and silver, has been a controversial topic, with accusations that these financial instruments are used to artificially suppress prices. This argument, mainly advanced by gold and silver bulls, is rooted in the inherent discrepancy between gold, which has been money for millennia, and fiat currencies, which represent credit and are prone to collapse. Historical precedent supports this view, as governments that have promoted their fiat currencies in the place of gold have repeatedly seen their financial systems disintegrate.
Historical Significance of Gold
Gold’s legal status as money dates back to ancient Rome, where it was distinguished from credit. In such a monetary system, the value of gold is objective, while the value of the goods or services being exchanged is subjective. This arrangement means that the buyer and seller both value gold the same way, but the goods being traded hold different values for each party. On the other hand, fiat currencies, which are seen as inferior substitutes for gold, are not treated with the same stability and credibility, despite governmental efforts to promote them as reliable mediums of exchange.
Historically, governments have actively discouraged the use of gold as money, favoring fiat currencies in an attempt to control and stabilize their economies. However, the eventual failure of fiat currencies is inevitable, which, in turn, undermines the entire derivatives market built around gold and other commodities. The failure of fiat currencies is often accompanied by inflationary crises, such as those experienced in the 1970s.
U.S. Financial Policy and the Dollar-Gold Relationship
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