GT sez:
Gold wound up being the benchmark of holding value over history because of its characteristics.
1. it is rare
2. it is easily divisible into consistently equal parts of equal quality
3. it has industrial use
4. it doesn't degrade over time in any environment
There are more, but that's enough.
When physical gold coins or other units were being exchange between people for goods and services, GOLD WAS THE MEDIUM OF EXCHANGE, OR MONEY!
Then someone said, 'Why carry that heave metal around with you? Why not leave it in storage here in my storage unit (bank) and I'll give you a paper receipt for it (fiat money)."
So people bought into that service thinking that the 'banker' had some integrity and would honor his agreements.
But the banker realized that people weren't coming in to reclaim their gold by turning in their receipts (now being used as a medium of exchange (money) among the populace.)
The banker, now thinking dishonestly, thought, "maybe I can issue some receipts without taking in any gold to back the receipt and use those receipts to go out and buy things. Who will know the difference?"
After a while, all those phoney receipts started to DEVALUE the value of all the other receipts in the community like putting extra water dilutes the value (taste) of Kool Aid. So people who had goods and service to trade started asking for MORE RECEIPTS (fiat money) because each unit of paper receipt had less value. (a SYMPTOM of the INFLATION (increase) of the supply of paper receipts (INFLATION).
The price (in paper receipts) for the gold in storage in the 'bank' went up because of the extra paper receipts in circulation. The gold NEVER CHANGED! It stayed in the same condition. It didn't degrade or lose value in and of itself. What LOST VALUE were the paper receipts. NOT THE GOLD!
THe gold was just revalued IN TERMS OF paper receipts (paper money).
So to protect yourself from INFLATION OF THE PAPER RECEIPT SUPPLY (paper fiat money), YOU JUST HOLD THE GOLD AS A SAFE HAVEN.
It does not accrue interest. It may cost you to store it somewhere (a cost), but you don't want to be that stupid, so you keep it safely stored in your physical possession (a hidden vault).
ALL OTHER EXPLANATIONS ABOUT GOLD ARE BULLSHIT!
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