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Gold and Silver Are Sound Money


Though tyrants and despots have for generations attempted to create money from nothing via currency devaluation schemes, the result is always the same. A collapse of confidence in the government-issued script leads to a renewed demand for gold- and silver-backed sound money.

History is replete with examples of this phenomenon. In fact, the first known case of currency devaluation dates back to the reign of Dionysius the Elder (or Dionysius I), a Greek tyrant who reigned over Sicily in the fourth century B.C. To fund his wars, Dionysius called in all of the existing currency and then simply reissued a new currency with twice as much supply. An effective devaluation of 50%! And with this, the script was set for governments to follow over the next 25 centuries.

As such, hundreds of government-issued fiat currencies have come and gone in the time since. Empires have risen and empires have fallen along with the supply and demand of their currency. At present, we all recognize the demise of the American empire as the currency used to support it is being similarly devalued. As history has taught, the time will come when the world loses confidence in the U.S. dollar, and when it does, the pendulum will inevitably swing again toward the reintroduction of sound money.

Recognizing this, many states in the U.S. have passed laws over the last decade that have legalized or introduced the use of gold and silver coins as legal tender. What does that mean? Perhaps you've seen the term "legal tender" bandied about from time to time but never fully understood what it meant. If that's the case, here's a great explanation from Investopedia:

What is Legal Tender?

As this applies to sound money and physical metal ownership, consider what has become law in the U.S. state of Arkansas. Last year, the Arkansas legislature passed a bill that was then signed into law by the governor. This bill, AR HB 1718, legalizes the use of physical gold and silver as actual currency within the state. As such, residents of Arkansas can now transact payments using physical metal as the medium of exchange and these payments are not subject to additional taxes.

But it's not just Arkansas. Multiple other states have joined the movement toward reestablishing gold and silver as sound money and legal tender for transactions. See this article that was recently picked up by Yahoo Finance:

The state of Texas has been at the forefront of this movement. The state first made news in 2015 when legislation was passed that authorized the building of a state-owned bullion depository. Plans were made, contractors were hired, and the institution was built and fully functional just a few years later.

Recently, the state of Texas has looked to take things a step further with the introduction of a gold- and silver-backed digital currency. Though this first effort, titled TX HB 4903, failed to pass, you can be certain that the measure will be brought to another vote in the near future. If and when the bill becomes law, Texas will begin to issue the first of its kind gold- and silver-backed digital currency. This digital currency could then be used as legal tender for private transactions within the state.

Digital Currency As Legal Tender

What do all of these developments mean to the precious metals investor? Well, if you're like me, part of the reason you hold physical metal is for protection against fiat devaluation. However, it's likely that you also recognize that gold and silver have been used as money for millennia. The world of global finance may currently view government script as the most reliable means of exchange in trade. However, as the list of U.S. states using gold and silver as legal tender grows, the recognition of gold and silver as money will grow too.

As the world follows the example of Dionysius the Elder and completes another currency devaluation cycle, gold and silver will once again return as sound money. The global central bankers know this. Legislators in multiple U.S. states know this. And you know it too. Prepare accordingly through the disciplined, consistent acquisition of your own physical precious metal.

Don’t miss a golden opportunity.

Now that you’ve gained a deeper understanding about gold, it’s time to browse our selection of gold bars, coins, or exclusive Sprott Gold wafers.

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About the Author

Our Ask The Expert interviewer Craig Hemke began his career in financial services in 1990 but retired in 2008 to focus on family and entrepreneurial opportunities.

Since 2010, he has been the editor and publisher of the TF Metals Report found at TFMetalsReport.com, an online community for precious metal investors.

*The author is not affiliated with, endorsed or sponsored by Sprott Money Ltd. The views and opinions expressed in this material are those of the author or guest speaker, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.


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