Why are Greeks buying gold?

From The Daily Mail:

To many modern economists it must seem an irrational response, about as helpful as marching to the top of the Acropolis to pray for the assistance of the goddess Athena.

In fact, it is the most practical course that the unfortunate Greeks can take as individuals.

In the present situation of the Greek economy, gold is the most likely unit of exchange to survive the currency crisis and maintain its purchasing power, particularly if Greece has to leave the Eurozone.

Greece will probably be forced into default. If there is a default in Greek bonds, it may well involve a rise in the gold price as the bonds fall in value

There are historic examples. In June 1940, at the time of the fall of France, refugees headed south en masse - away from the German tanks and towards those parts of the country which were still in French hands.

When they went to buy petrol, they found no one would accept their francs, though they were still legal tender. The petrol stations would, however, still sell fuel to those French peasants who had kept their money in gold coins.

Greece will probably be forced into default. If there is a default in Greek bonds, it may well involve a rise in the gold price as the bonds fall in value.

There is also then likely to be a rise in the price of gold in terms of the euro, the dollar, the yen and the pound. An investor in gold will not only maintain the value of his investment, but make a profit.

One of the historic functions of money is to serve as a store of value. Quite a number of commodities have been a good store of value over long periods of time. That has been true of farmland, which has, with fluctuations, maintained its real value for 300 years or more. That has, among other things, helped individual farmers to trade on a constant capital.

Yet farmland, useful as it is as a stable asset, is not liquid, unlike such metallic currencies as gold and silver. Farmland cannot be assumed to be immediately available for purchase or sale: for example, a farmer may have to wait for a neighbouring farmer to retire or die. Yet gold or silver can be sold immediately in almost any part of the world at a readily ascertained current price.

For traders, liquidity is an essential virtue in any form of money. However, the combination of liquidity and real value is almost unique to metallic currencies.

But they have a further highly significant advantage. Paper currencies are issued by governments and central banks. The dominant currencies of the past two centuries were the pound and then the dollar. One can see how little security they give from the mottos printed on their notes.

The ten-pound note offers as its underlying security the statement: 'I promise to pay the bearer on demand the sum of ten pounds,' signed by the Chief Cashier.

The dollar, rather more frankly, observes: 'In God We Trust.' Neither the Chief Cashier, nor God Himself, is in any position to offer such a guarantee.

The truth is paper currencies are only worth the paper on which they are printed, and sometimes not even that.

Read more: http://www.dailymail.co.uk/debate/article-2008068/WILLIAM-REES-MOGG-The-Greeks-buying-gold--you.html#ixzz1QQ9zZkH9