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Gold: Trusted Safeguard Against Currency Devaluation

Updated on December 26, 2009

There are many places in the world where citizens do not have access any kind to the liquidity of markets as seen in the form of government bonds or corporate stockholdings. They also may not be able to access bank accounts that are set up in stable currencies such as the U.S. Dollar or the European Union Euro. In fact many of these individuals do not have access to bank accounts in any way whatsoever. To these millions of people it has been a tradition going back centuries if not millennium that gold is the chosen vector of savings and the maintenance of storage of wealth as it has been proven to be an extremely valuable asset to possess.

If we take for example, the situation currently in Vietnam in order to purchase a home, gold has a very critical and central role. The purchase of residential property in Vietnam does take a considerable amount of time as is common in many nations. From the day where the seller and the buyer have a hand shake agreement on a price and the rest of the terms for the real estate transaction, up until the date when the sale is finally considered to be completed and all of the documentation is finalized can be well over a month. Since the Vietnamese Dong currency has a marked tendency to depreciate strongly, the value of that currency may be significantly less at the end of the month than it was at the beginning of the month.

To put this into Western perspective, imagine that you were purchasing a house for $300,000 which buys the equivalent of (let's say) 300,000 loaves of bread. You place an offer and the seller accepts that offer on August 1. You now take 30 days to close. On August 31, the $300,000 in cash is turned over to the seller, however they can only buy 250,000 loaves of bread (or anything else) with it, as the currency has been devalued by one sixth in the past 30 days. The currency devaluations are also impossible to accurately forecast. The devaluation between August 1 and August 31 may have been one sixth, but between July 1 and July 31 it had been one eighth, and between September 1 and September 30, it might be one quarter!

The way to cope with such rapid depreciation in the national currency is that a Vietnamese buyer will take steps to have financing extended by a bank or mortgage investor not based on the national currency being the Vietnamese Dong but actually in gold. The advantage of arranging this financing, not in currency but in the solidity of gold metal, is that the purchasing power of the medium tends to hold its value and does not devalue quickly and uncontrollably as does the Vietnamese Dong which is the national currency.

By ensuring that the transaction is financed on the basis of a standard of value of gold allows the buyer to know that by the time that the documentation is finalized and the sale can proceed, the amount of financing which was necessary for the residential property will more or less stable, rather than having to take a calculated bet on what the longer term value of the Vietnamese Dong would be.

Continued In Gold: The World's Women Protect Their Futures

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