The Reasoning Behind Gold's Breakout

 -Holmes/Gold Money
"Gold's dramatic move above $1400 has caught the investment establishment by surprise...As well as being badly wrongfooted, investment managers have little understanding of the role of gold as money, believing it to have no role in the monetary system. They will have to undergo a rapid re-education. This article addresses their common misconceptions....Myth 1. Gold is no longer money - The first step towards understanding the role of gold is to recognize it is money. It still competes with today's fiat currencies as money and predates them by many millennia....For ordinary people, gold will become an increasingly important refuge, given the prospect of an acceleration in monetary inflation as the world tips into recession...In the growing certainty that fiat currencies will die, gold can and will rapidly return to circulate as money....Myth 2. Gold doesn't pay interest - Only hoarded gold, like physical currency cash, does not pay interest. Gold is loaned and borrowed for interest, just like fiat currencies....In the days of the gold standard, when currencies were accepted as gold substitutes, the originary interest rate was that of gold...gold's originary rate was normally in the order of two or three per cent....Myth 3. Gold is expensive to store and insure - This is untrue...Fully insured annual storage fees for gold in LBMA approved vaults range between 0.01% and 0.018%. ETFs and mutual funds charge far higher rates for management, administration and custody....Myth 4. Gold has no intrinsic value - The financial concept of intrinsic value depends on the income stream generated by an asset... Gold pays interest on being loaned out, so it must have an intrinsic value....Conclusion...With governments everywhere itching to increase spending without raising taxes and as the global economy sinks into a trade and credit-cycle induced recession, budget deficits will fuel monetary inflation at a faster pace than seen before. Re-learning that gold is sound money is now the most urgent priority for all those charged with responsibility for other peoples' investments."