When you listen to CNBC reporters talk about how Commodities are up today because of a weaker dollar, they typically mention gold and oil in the same sentence and show some charts about how they have moved higher. But while both gold and oil will react to a weaker dollar they are worlds apart in their use and purpose.
Gold, while in and of itself has no real use except for gold fillings and jewelry, has historically survived as money because of its durability and ease of mobility from person to person.
Oil, on the other hand, has real value in everyday life for the purpose of various industries, including auto, airline and various gas powered machines like lawn mowers or even the clothes we wear and the carpets we walk on which are made from petrochemicals whose main ingredient is oil.
But only gold can claim to fit the definition of money as a “medium of exchange.” One can’t take a court of oil down to the local gas station and exchange it for dollars to buy items like one can take their gold to a gold dealer and get cash. Once you buy that quart of oil, you’re pretty much stuck with storing it or using it.
While gold may be considered a commodity by definition, it has been historically much more useful as a medium of exchange and still can be today. And should we ever get to a point of hyperinflation in the future, gold would still be used as a medium of exchange in place of the dollar.
Even the Definitions Point Out the Truth About Gold
Take a look at the definitions of “oil” and “commodity” provided by Websters and you won’t see the word “money.” But take a look at the definition of “gold” and you’ll see it defined as “money.”
So when CNBC talks about commodities moving higher because of the weakness in the dollar, keep in mind that gold is the commodity of choice the world over that also acts as a medium of exchange should it ever be needed.
Gold defined:
1 : a yellow malleable ductile metallic element that occurs chiefly free or in a few minerals and is used especially in coins, jewelry, and dentures — see element table table
2 a (1) : gold coins (2) : a gold piece b : money c : gold standard 1
3 : a variable color averaging deep yellow
4 : something resembling gold; especially : something valued as the finest of its kind <a heart of gold>
5 : a medal awarded as the first prize in a competition : a gold medal
Oil defined:
1 a : any of numerous unctuous combustible substances that are liquid or can be liquefied easily on warming, are soluble in ether but not in water, and leave a greasy stain on paper or cloth b (1) : petroleum (2) : the petroleum industry
2 : a substance (as a cosmetic preparation) of oily consistency <bath oil>
3 a : an oil color used by an artist b : a painting done in oil colors
4 : unctuous or flattering speech
Commodity defined:
1 : an economic good: as a : a product of agriculture or mining b : an article of commerce especially when delivered for shipment <commodities futures> c : a mass-produced unspecialized product <commodity chemicals> <commodity memory chips>
2 a : something useful or valued <that valuable commodity patience>; also : thing, entity b : convenience, advantage
3 obsolete : quantity, lot
4 : a good or service whose wide availability typically leads to smaller profit margins and diminishes the importance of factors (as brand name) other than price
5 : one that is subject to ready exchange or exploitation within a market <stars as individuals and as commodities of the film industry — Film Quarterly>
Money defined:
1 : something generally accepted as a medium of exchange, a measure of value, or a means of payment: as a : officially coined or stamped metal currency b : money of account c : paper money
2 a : wealth reckoned in terms of money b : an amount of money c plural : sums of money : funds
3 : a form or denomination of coin or paper money
4 a : the first, second, and third place winners (as in a horse or dog race) —usually used in the phrases in the money or out of the money b : prize money <his horse took third money>
5 a : persons or interests possessing or controlling great wealth b : a position of wealth <born into money>
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About Doug EberhardtDoug Eberhardt is a 28 year financial services veteran and precious metals broker selling gold and silver at 1% over wholesale cost. Doug has written a book to help investors understand how gold and silver fit into a diversified portfolio, how to buy gold and silver, and what metals to buy. The book; “Buy Gold and Silver Safely” is available by clicking here Contact phone number for Buy Gold and Silver Safely is 888-604-6534
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