Can gold be used as a currency?

By Felix Salmon
April 27, 2012

It worked! Kinda. I took Matthew Bishop’s challenge, and tried to spend a gram of gold like I would any other currency. And, frankly, didn’t have a lot of luck — until I managed to find a small business where the owner just happened to be standing around. In the end, I got three lobster rolls (and free drinks, too) for one gram of gold. Which were very tasty — thank you Snack Box!

So, what did I learn on my expedition in Times Square?

  • When I tell the Snack Box owner that the gold is real and that “you can tell by how shiny it is”, I’m not kidding. Pure gold is really shiny.
  • The most surprising people turn out to know how much a gram of gold is worth, with an astonishing level of accuracy.
  • Gold is not a currency. I’m reasonably sure that Andrew, the guy behind the counter at Snack Box, would not have accepted my gram of gold unless his boss was telling him to.
  • If you do want to spend gold, then try your luck with small businesses, and don’t expect a good implied exchange rate.
  • Also, bringing a film crew along is unlikely to help you at any big chain store.

Most interestingly, however, at least to me, was how much it actually cost us to obtain that gram of gold. For the purposes of the video, I was using the value of one gram of gold based on its market price per ounce. But if you go out and attempt to buy a gold bar, you’ll never be able to find one for a mere $53. In fact, my producer wound up paying double that, in Manhattan. Even if you do a lot of searching online, you’ll be hard pressed to find one for less than $80. We didn’t try to sell the gold — we wound up getting a delicious lunch instead — but my guess is that in most cities the effective bid/offer is absolutely enormous. And much bigger than for any major global currency.

Still, it was a fun — and tasty — experiment. If you try it yourself, do let me know the results!

31 comments

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I searched on amazon for a new 1 gram credit suisse gold bar and the cheapest I found was a hundred dollars, plus shipping. Whoa. Don’t think I’ll be able to try this experiment in my own city.

Posted by Strych09 | Report as abusive

Utah has approved the use of gold as a curreny.

Posted by MrFC | Report as abusive

What a waste of value.

Posted by GRRR | Report as abusive

Felix, next time try with silver

Posted by the_italian_guy | Report as abusive

I bet the bid/offer ratio on a gram of iron would also be pretty high…

Posted by TFF | Report as abusive

the beer delivery guy knew the value of a gram of gold right away? that flat out shocks me!

Posted by KidDynamite | Report as abusive

@KidDynamite Maybe he was a Glenn Beck/Ron Paul fan and has been preached to about gold for years…?

Posted by CDN_Rebel | Report as abusive

Gold functions as a store of value but does not have the liquidity required to function as a currency. A store of value (gold, salt, cattle, or another country’s currency perhaps – see Zimbabwe) could only morph into a functioning local currency in two ways, as an alternative in the absence of sufficient functioning domestic currency to serve commerce, or to a public losing faith in the value of its own sovereign currency.

Posted by mw66 | Report as abusive

Felix the question is not CAN… it’s WHERE and HOW. Karatbars International is a company expanding worldwide fast with all the problems of using gold as a currency resolved. Tamper proof, from LBMA refinery. 1 gram product cards can be used online and offline in a few countries now, worldwide very soon. Also many other benefits and all no cost, as well as world’s lowest price gauranteed.

Karatbars International is a Global Currency Exchange System and private parallel competing monetary system using sound money 999.9 24K (gold) also world’s first/only.

Posted by dennislm | Report as abusive

Karatbars 1 gram Gold Card is at 57 Euro today, or about 76 USD, so slightly cheaper than 80 USD referred to as the cheapest by Felix Salmon.

Interestingly Karatbars Gold Cards are not only cheaper, but far more secure, as they come in plastic laminated credit card sized units. The card indicates that the gold is produced by an LBMA refinery, that it is 999.9 pure and that it is indeed 1 gram. Karatbars gold also has a unique and traceable serial number and it comes with a unique security hologram on the backside of the gold, making it completely tamper proof. Because of this added security Karatbars can easily be accepted anywhere by anyone who knows about Karatbars.

Regular gold will of course not replace money in the same way that Karatbars can, simply because you need to know allot about gold in order to be able to verify its purity and quality. If I had a business and someone in my staff accepted a piece of gold as money I would be upset because of the uncertainty of its real value. Gold being shiny is not something to go on at all. A few days ago The Washington Post reported that after a probe, “South Africa’s central bank says 6 Krugerrands found short on gold”. So even the famous Kruggerand is not safe, and we can only assume that the 5% gold missing from these gold coins was not enough profit for the people behind that scam, there should be more coins out there with less gold content.

Anyway, gold gives security, especially in the small secure and certified units Karatbars operate with. In times of extreme crisis gold will always be accepted. You can only imagine a situation where you are a store owner during times of hyperinflation (not too unlikely with the dollar one day). What would you accept for your goods; money that may lose value over a few days, or certified gold that is inflation proof?

Financial experts recommend that basically everyone secure themselves in physical gold, with around 5 to 20 percent of their assets depending on their financial situation. With such a strategy you save a part of your money in gold for long-term security and basically hold on to it regardless of short term trends. And to have an idea about how smart it has been to hold on to gold long-term compared to holding onto money:

- If you put aside 300 USD per month the last 20 years that would amount to 72.000 USD (without interest), inflation would put your actual purchasing power at about 56.000 USD.

- If you converted 300 USD per month into gold (spot price) the last 20 years, you would now have gold worth about 220.000 USD. Taking inflation on the dollar into account your purchasing power from your gold should be around 170.000 USD!

And that is gold for you, accepted at “Toys R Us” or not! ;)

Posted by Click2invest | Report as abusive

Click2invest, if you’ve been stuffing $300 cash per month under your mattress for the last 20 years, and haven’t invested any of it, then you need a new financial advisor.

Posted by TFF | Report as abusive

If you tried to use Yen at the Snack Box, I don’t think they would have accepted that either. Does that make Yen not a currency either?

The only difference between the US dollar and Monopoly money is that one is printed by US government and the other by Milton Bradley. One hundred years from now, the purchasing power of the US dollar will be a fraction of what it is today. If you doubt this, consider how the value of the dollar has held up over the last one hundred years.

Posted by JonathanK | Report as abusive

This isn’t a bid/ask spread, this is a discount. The vendor is discounting your assertions of pure gold. What was the face value of the lunch you purchased?

This is not unlike early 19th century banking, where bank drafts were discounted by the bank which received them based on distance, reputation, solvency, etc. The only way to receive 100% credit on a deposit was to deliver specie. During the bimetal pre-Civil War era, that was usually silver, although gold was easier to transport because it was more compact.

Your assertion of “see how shiny it is” is hardly a sound assay method. If gold ever were to be used in transactions, look for fraud to become rampant. Given that this is a cash transaction with no recourse, a 50% discount seems reasonable.

Against this we have this Karatbars assertion that the gold backing their plastic is 99.99% pure and it’s really there. Really. And did they send their audited financial to go with that card? Including an operational audit and asset-tracking report? But the discount for Karatbars seems to be about 30%. Again, that seems rational to me.

Money serves three purposes: a unit of exchange (tested here, not very efficient, subject to fraud), a store of value (pretty good, at least for the last 10 years), and a unit of account. Hey, why don’t you restate Apple’s financial in grams of gold? See how useful that is? Better yet, restate the last 5 years in gold computed at the average daily price (as of the London PM fix) for that year. Less tasty that Gold-bar lobster rolls, but perhaps more illuminating?

Posted by DougT | Report as abusive

Hahaha, good point TFF! :)

My investments in trees give me over 11 times the purchase price in profit over 20 years by the way. Gold on the other hand is not an investment when saving for your pension etc.

It is also worth mentioning that Better Globe Trees are planted in ASAL (arid- semi arid land) not fit for food production and a strategy is implemented to help poor African farmers and their families out of poverty through sustainable development.

Anyway, investment carries risk and anyone would be well advised to have 5 to 20 percent of their assets in physical gold (preferably in small certified units), which, as already mentioned, gives financial security and conserves you buying power with the least amount of risk available .

Posted by Click2invest | Report as abusive

the question is not IF gold can be used as currency in the US, but “at what exchange rate can gold be used as currency” ???

that’s what I really want to know every time someone mentions things like Utah approving gold as legal tender… at what rate?

Posted by KidDynamite | Report as abusive

So Click2Invest’s overall observation on various investment strategies is:

Buying gold is superior to putting paper money in a shoe box for 20 years, but not as good as buying trees.

Do I have it right?

Posted by Nylund | Report as abusive

“If you tried to use Yen at the Snack Box, I don’t think they would have accepted that either. Does that make Yen not a currency either?”

It makes it not a currency in New York City! Dollars don’t really circulate in Hokkaido, either. And gold doesn’t circulate much of anywhere. A currency is a generally accepted medium of exchange, in some society. That is what the word _means_. Why do goldbugs get so wrapped around the axle about this? Gold is not money, and it is not currency. It is a commodity.

Posted by ckbryant | Report as abusive

This is one of those articles that you either interpret as a merely entertaining stunt or something that reflects a much deeper lack of comprehension by the author. However, the importance of a gold standard is such that, in either case, the segment must be judged as a misguided and destructive hack job.

As another comment mentioned, gold is not useful as a low denomination currency. Its role in banking is as a non-fiat standard and for final clearing of reserve transactions. When gold is used as the standard in a stable banking system, then there is no motivation or purpose for citizens to actually hold or exchange physical gold.

Today people know that inflation has been cooked in, thus the flight to gold. Gold as money is a store of value, a unifier of transaction pricing, but more importantly, an enduring standard that allows humans to make rational judgments regarding huge investments in factories and resources within and across national boundaries — investments that may take decades to play out. The world needs a gold standard even more now than it did in past centuries.

The Bank of England maintained a stable, gold-backed currency for a century with roughly only 2% reserves as the economy multiplied. Inflation under a gold standard approaches zero. The philosophic and economic purpose of eliminating the gold standard was to free central banks to fund the welfare state and inflate away government debt. Fiat currency further gives central planners power to play economic Tsar and create disastrous bubbles.

Posted by CTAinVA | Report as abusive

The other thing I don’t really get about goldbugs is the constant fixation with inflation. As JonathanK says, it’s true that the purchasing power of the US$ will be a fraction of its current value in a hundred years. But the US population will have grown a lot, and each person will, we hope, be earning a lot more dollars on average – unless continued growth in inequality causes most people’s incomes to stagnate. In that case, gold will not help you.

Some other gold bugs say that the Federal Reserve keeps printing money and debasing the currency – except that our population and our GDP are growing, so we need an increasing money supply.

It would have to be complete social breakdown before gold becomes a commonly accepted medium of exchange in the US. If that happens, there will be lots of robberies. Bid/ask spreads will be very, very large. What are the odds of that happening? It’s true that we have very significant fiscal challenges if we can’t get our healthcare costs under control, but wouldn’t our energies be put to better use trying to fix that and our other fiscal problems rather than hoarding gold?

Posted by weiwentg | Report as abusive

Inflation is a huge concern if you keep your savings in cash. Less so for investors in stocks, real estate, or other more tangible property.

Gold bugs don’t trust the Federal Reserve or the other central banks. It isn’t 2% inflation that they fear, but the possibility of a much higher inflation rate (think Weimar Republic). I’m inclined to shrug off that scenario, but what do I know?

Having 5% of my savings in gold would be scant comfort if the national economy blew up. And anything more substantial would destroy any hope of long-term returns if the economy DOESN’T blow up. Chance of losing either way, so I’ll bet on the Fed muddling through.

Posted by TFF | Report as abusive

The only reason gold can be used in this way is because it has an up to the minute price that gets advertised. 20 years ago I could walk into just about any auction and tell you what the total of the sales would be before the auction started. I could tell you fairly accurately what each item would sell for save emotion purchasing. If such up to the minute prices were advertised for oak commodes or copper boilers or empire chests than each of these would be just as good as gold for making purchases. You might not carry a chest around with you, but you’re also not apt to leave it on the bus seat or at the deli counter.

Posted by whoopie | Report as abusive

Well Nylund, buying gold is simply security the way I see it. Gold is not really an investment because it does not have any yield; it is a safe store of value that depends on supply and demand. If you buy stocks in a gold mining company you can call it an investment because value is created. Trees as opposed to gold grow (literally) in size and value and can be harvested, thus producing a profit. Better Globe Trees grow regardless of what happens in the financial markets and help protect both the environment and help bring poor families out of poverty. Trees have also been one of the very best hedges against inflation together with gold the past 100 years.

In Norway where I am from more and more people awake to the benefits of investing in trees opposed to for example the real estate market. A very simplified way of looking at it is that after 20 years a 300 square feet apartment is still a 300 square feet apartment, but a seedling has grown to a mature tree ready to be harvested and the demand for trees long-term is in constant growth.
PS! I only support investment in trees through sustainable forestry, preferably agroforestry.

Here is how I consider the importance of money, gold and investments like trees:

Buying gold and saving long-term for sure is safer and more economic than saving your money in the bank, even with interest. Savers in today’s market are gradually losing money over time due to inflation, it is simply unavoidable.

Even so, you still need money in the bank. You need to have a cash reserve that is easily available in case of emergency of a personal nature. As mentioned by someone else above; gold is not a currency and by definition this is true, but at the same time gold has been the basis for money for a very, very long time.
Gold is a commodity and as the video above demonstrates; gold is not accepted in stores, not even Karatbars (although they are working with expanding acceptance worldwide and already have more than 10.000 points of acceptance in Germany, they are even preparing an online merchant platform based on gold). So gold cannot be your first priority. Financial experts rightly recommend everyone to have money available in the bank, sufficient to at least cover all regular expenses for 2 months.

When you have your money saved up to cover 2 months of the household’s expenses it is usually time to invest. But I think you need to consider physical gold first or at least simultaneously as you invest. This is because gold gives you a security that no money or investment can give you, the same goes for insurance policies. Have you ever heard about an insurance company offering a policy against financial crisis or hyperinflation?

Gold is your free insurance policy that will keep you safe when everything else fails. Gold bugs or not, you have absolutely nothing to lose by setting aside 5% of your money in gold on a regular basis if your economy allows it. What is left you can invest. This strategy should give you the ultimate long-term safety and it does not really cost you much because you can always sell your gold again. When you buy gold in small and flexible units (which is the safest option) you should only do so with money that you can do without for a long time. You need to allow at least 2 years or so from your last purchase until you sell if you want to make sure that all your gold has gone up to cover the spread, but you may of course chose to sell at any time you see fit. Personally I am saving in gold every month in case of crisis or eventually retirement, so I am not selling anything until I am forced to.

And what I really like about Karatbars is that they provide flexible units with free storage included. They have a very good price policy in the market they are in with 1 gram units. They also offer the best available buyback price in the market. The gold is LBMA produced and tamper secure. They are developing acceptance point all over the world and slowly creating an alternative to money for those who want to spend their gold. They are also working on an online merchant platform that will come in the future. This will allow people to buy products and services electronically through their gold accounts. Karatbars is free to join and they have a free affiliate opportunity for those interested, what bank by the way would let you earn an income by finding other savers?

Karatbars have also created the world’s first Gold Back System, which will allow people to buy services and goods and get gold back in return on their free gold account. This is a very interesting concept opposed to the more common Money Back offers out there. So Karatbars is allot more than just for gold bugs and they offer allot more than a base 1 gram bullion as seen in the video above.

The Karatbars Gold Chip Card would most likely face the same difficulties as shown in the video, but with LBMA and plastic coating I think people with have more trust in it. It would be easier to claim that it is real gold, especially to anyone that knows gold well. I have this personally confirmed with merchants and gold dealers in both Argentina and Brazil.

Anyway, with gold you preserve your wealth and purchasing power, and obtain a “free insurance policy”. With investments like Better Globe Trees you create wealth and make sure that your money starts to work for you, as opposed to you always working for your money. It is an essential strategy to create true wealth. But the way I see it gold comes before investments, because what is wealth without security?

Posted by Click2invest | Report as abusive

I would really like that anyone posting would have done a minimum of research and/or thinking before typing their very personal opinions.
1) Trying to use a few euro coins to pay a big mac + chips & coke in NYC or Nebraska is a pointless experiment. You could try and fail with UK 10 pences coins, Swedish Krones or Swiss Francs as well, for example, but the fact is that all of them are all perfectly usable in their respective countries to achieve the very same purpose. None of those international or local only currencies are readily usable for mains street shopping in US, but that does not take away their currency status or functionality as legal tender.
In the very same way go in any jewellery souk in middle east or India and 100% of the operators will both bid and ask for your gold gram at a much closer market spread.
Finally, do the same with a Diamond in the diamonds district in Antwerp or at Van Cleef & Arpels in place vendome, Paris. The whole idea is missing the key point, standard means of payment are all about the place where the payment happens, change the place and the standard contents will change as well.

2) Please do go to any emerging economy/BRIC central bank and tell them they should indeed dump their quota of the 32 Tons of gold they’ve bought in the last quarter of 2012, because it’s obviously NOT a reserve currency, given that you can’t buy a big mac + chips & coke in NYC.

3) Also, while you’re at it, please tell US govt that they might as well get rid of that 8.000 Tons of barbaric relic stored in an awkward fortified vault (if it’s still there, btw), given that the almighty US greenback is now based on debt to gdp ratios that are hard to justify and a faltering economy, but hey, who needs assets backing their debts anyways when you can print fresh new debts to pay the former ones and tell everyone else that your (fiat) currency is the ultimate (safe?) haven?

4) And please, while at it, tell Iran that they shall not accept chinese gold for they oil barrels, it’ useless for all the above mentioned reasons.

So long USD denominated world, The Times They Are a-Changing, as Bob Dylan used to say..

Posted by LouMercatali | Report as abusive

I would really like that anyone posting would have done a minimum of research and/or thinking before typing their very personal opinions.
1) Trying to use a few euro coins to pay a big mac + chips & coke in NYC or Nebraska is a pointless experiment. You could try and fail with UK 10 pences coins, Swedish Krones or Swiss Francs as well, for example, but the fact is that all of them are all perfectly usable in their respective countries to achieve the very same purpose. None of those international or local only currencies are readily usable for mains street shopping in US, but that does not take away their currency status or functionality as legal tender.
In the very same way go in any jewellery souk in middle east or India and 100% of the operators will both bid and ask for your gold gram at a much closer market spread.
Finally, do the same with a Diamond in the diamonds district in Antwerp or at Van Cleef & Arpels in place vendome, Paris. The whole idea is missing the key point, standard means of payment are all about the place where the payment happens, change the place and the standard contents will change as well.

2) Please do go to any emerging economy/BRIC central bank and tell them they should indeed dump their quota of the 32 Tons of gold they’ve bought in the last quarter of 2012, because it’s obviously NOT a reserve currency, given that you can’t buy a big mac + chips & coke in NYC.

3) Also, while you’re at it, please tell US govt that they might as well get rid of that 8.000 Tons of barbaric relic stored in an awkward fortified vault (if it’s still there, btw), given that the almighty US greenback is now based on debt to gdp ratios that are hard to justify and a faltering economy, but hey, who needs assets backing their debts anyways when you can print fresh new debts to pay the former ones and tell everyone else that your (fiat) currency is the ultimate (safe?) haven?

4) And please, while at it, tell Iran that they shall not accept chinese gold for they oil barrels, it’ useless for all the above mentioned reasons.

So long USD denominated world, The Times They Are a-Changing, as Bob Dylan used to say..

Posted by LouMercatali | Report as abusive

I think the really important point is, that without much effort you managed to establish a street level market for gold.

Yeah friction is high, but if you really wanted a megadroid or whatever, bet you could have sold the gold itself on the street for at least $35.

The next person to try it will have an easier time.

Posted by tqft | Report as abusive

“without much effort you managed to establish a street level market for gold”

He traded something that cost him $80 for a lunch worth $20. Search long enough and you’ll probably find somebody in NYC who will let you pay for a taxi ride with a new iPad too. Look in the right places and you can swap $5000 of used electronics (no questions asked) for a $100 gift card.

The fact that something can be used in a barter transaction does not make it an effective currency. Currency ought, ideally, to have NO bid/offer spread. Or at least a spread measured in the low single digits (as with credit cards and other forms of payment with transaction fees attached).

This isn’t a situation where “the next person will have an easier time”, because there aren’t many people willing to sacrifice that much value just to make a point (and to establish a market). This is a situation where the spreads need to come down BEFORE the market starts to grow.

One of the difficulties in using gold as a “store of value” is that “capital gains” from the sale of gold are taxable at the “collectibles” rate. Does the Utah law bypass this somehow?

Posted by TFF | Report as abusive

I do not know about the tax situation in the US, but I have to agree with TFF that gold in 1 gram units are not suitable as a replacement for currency in today’s market (particularly because of the spread). If gold would be to somehow take completely over from the dollar that would be another case, besides that gold is neither suitable nor economic to the consumers.

However, in times of crisis or hyperinflation (should that occur) certified gold units like the one’s Karatbars offer might go for a significantly higher price than the actual worth of the 1 gram gold bullion, depending on market and negotiation. Since paper money does not have much value during inflation gold becomes even more important and during the Weimar inflation 3 grams of gold could buy you as much as a huge residence, valued far more than the 3 grams it was traded for. And in case of US hyperinflation other currencies might not come to the rescue, as most of them are in some ways tied to the dollar, also through national reserves. In such a scenario gold will go high in a matter of days, and small verifiable and flexible units might turn out to be the very best thing you can own besides food.

Personally I do not save Karatbars Gold because I want to use it as a currency. I save Karatbars because the security it gives that I cannot find elsewhere, because it gives my portfolio a hedge against crisis, because they have a buy back guarantee with the best buyback price in the market, because I can earn money by recommending their gold to other savers through an affiliate plan (I am getting paid to save!), because they have a flexible purchase plan that starts as low as 50 euro per month (making gold available to everyone) and because I have lifelong free storage included. All in all a very good value, even with the spread making Karatbars considerable more expansive then spot.

Although Karatbars are setting up acceptance points worldwide and working on creating an online merchant system I am in no way looking to spend my gold as a currency in today’s market. As TFF says, there should not be a huge buy/sell spread on a currency, and gold has nothing to do as means of payment over the counter these days the way I see it. Save it for a better day when the need really calls for it, until then spend your paper money (invest, buy commodities etc) and as much as possible of it. If you are sitting on more than 2 month’s worth of expenses you might be holding on to too much money…

Posted by Click2invest | Report as abusive

I recently bought 8 grams of green with a gold 2 gram UBS Kinebar or “karatbar” as called here above.

The seller didn’t even blink surprised when I asked him if he wanted paying in paper or in gold.

#goldismoney

Posted by FredQuimby | Report as abusive

Gold is a commodity just like any other.

Posted by BajaArizona | Report as abusive

I’m not as optimistic as TFF about how much the lobster rolls cost in Time Square. It’s probably more than $20 for the three of them. But still, Felix and his crew paid $26 per lobster roll. Clearly we need to get off gold and get us some lobster & bread futures.

Posted by GregHao | Report as abusive

I am total agreement with gold as currency and I want to share an opportunity for you to purchase/exchange cash for it for less than the $80 spent for the 1g in the video. Visit http://www.KaratBars.com/?s=iprovidesoul to register your gold savings plan NOW! Fiat currencies have intrinsic value, gold is a tangible asset class.

Posted by Anonymous | Report as abusive