And as I said, you can trade your gold for cash at multiple locations.
I could just as well say to take your stock certificates to the store and see if they will take them.
The point is: you cash in your holdings and with the money buy what you want.
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Abstract
The extent to which gold has acted as an exchange rate hedge is assessed using weekly data for the last thirty years on the gold price and sterling–dollar and yen–dollar exchange rates. A negative, typically inelastic, relationship is indeed found between gold and these exchange rates, but the strength of this relationship has shifted over time. Thus, although gold has served as a hedge against fluctuations in the foreign exchange value of the dollar, it has only done so to a degree that seems highly dependent on unpredictable political attitudes and events.
Introduction
Charles de Gaulle once said, “There can be no other criterion, no other standard than gold. Yes, gold which never changes, which can be shaped into ingots, bars, coins, which has no nationality and which is externally and universally accepted as the unalterable fiduciary value par excellence”. With these famous words, prompted and perhaps written by his adviser Jaques Rueff, de Gaulle summarised both a long-held view of gold and many of the reasons for that view being held. It is durable, divisible, and, for many years over a large part of the world, was indeed the ultimate standard of value. Not only that, it was a standard which held steady its purchasing power in terms of goods over a very long period of years (although there were short-term, occasionally quite substantial, fluctuations).
Looking at the entire period for which data on the gold price are available is, however, highly likely to be misleading. For there was part way through that data period a very substantial regime change. For many years gold was, if not money, the basis of the monetary system; then that ceased, and it became a commodity like any other. It is useful to explain briefly why gold was inevitably a good hedge when it was the basis of the monetary system, as understanding that is crucial to our choice of data period; and then to consider why gold may have remained a hedge even when these circumstances changed.
Having gold as money, or as the basis of the monetary system, meant linking a currency to gold at a fixed price. The behaviour of prices was thus taken outside the control of government and central banks, and depended on the gold supply relative to the demand for it. In such a situation an automatic stabilising mechanism was in place. Suppose that for some reason the price of goods rose relative to gold; this fall in the relative price of gold reduced incentives to produce gold, and also diverted some of the existing stock to non-monetary uses such as jewellery. Conversely, if the price of goods fell there was a rise in the relative price of gold, and thus a stimulus to its production. Hence, a considerable degree of price stability in terms of gold was to be expected. This built-in stabilising mechanism has been described in detail by several authors (see, for example, Mill, 1871, Barro, 1979, Rockoff, 1984). Crucial to this mechanism was gold being the basis of the monetary system. When gold no longer had that role, the
automatic stabilising mechanism, working from changes in the relative gold price, through changes in gold output and use, to changes in the money supply, was no longer in place.
