-- Posted Wednesday, 9 July 2008 | Digg This Article | Source: GoldSeek.com

By Bix Weir

For the past 8 years I have been an EXTREMLY vocal advocate of Gold as an investment practically begging everyone I know to buy some physical gold and stick it under their mattress, in a hole in their backyard or deep in their sock drawer. I have been the “Chicken Little” of my town running up and down the street yelling “The sky is falling, the sky is falling” but for the most part NOBODY was listening. Just after gold touched $1,000 for the first time in history, my phone was ringing off the hook with calls from friends, family members and others who all want to know one thing… “WHY?”

Now this is where I have always stumbled. Where can I start the gold story without losing their attention? (or them thinking I was the lunatic they always knew I was!) Should I talk about supply/demand imbalances, lack of reserves, inflation adjusted prices, gold’s monetary role, gold leasing, the credit crisis, paper vs. physical gold, naked shorting, the Gold ETF or…heaven forbid…the ongoing covert manipulation of gold? (www.gata.org). Where could I start without making them roll their eyes and walk away after the first two words came out of my mouth?

I believed I have found a suitable starting point, and I’d like to share it with you to help explain “WHY” to your friends and family. With people who have little or no knowledge of gold, I have decided to start all conversations by narrowing down the different gold “Camps”. Let’s call them the “3 Gold Camps” and here they are:

The Western Camp (N. America/Europe)

The majority of western societies view gold as jewelry and as a very small investment class followed zealously by slightly quirky, fringe investors they call “Gold Bugs”. Very little gold flows into western countries nor is much mined for export. In western societies gold is neither liked nor disliked. It is very rarely discussed and seen as of little relevance.

The Eastern Camp (Asia/Middle East)

The majority of eastern societies view gold as a store of value. Gold is sold mainly in the form of jewelry but that jewelry is purchased and held as a family’s wealth. Gold jewelry, coins and trinkets are given at annual times of celebration and used as a dowry at weddings. Gold is handed down through generations as inheritance and is, for the most part, only sold when cash is needed. Gold plays a vital role in eastern societies and is of great relevance.

The Central Bank Camp (All Central Banks)

To a central bank gold is money. A central bank’s prime objective to regulate the fiat money system their country (and the world) has adopted as their means of exchange. This is not an easy task given that since 1971 all countries are on a non-backed, floating monetary system.  Gold has served as money for thousands of years and has always competed directly and indirectly with paper money.  Proof of the central bank’s view on gold as money is found in their gold reserve holdings. Central banks are still the largest holders of physical gold in the world even though all paper currencies were taken off the gold standard almost 40 years ago. Central banks stock up on gold when it goes out of favor (80’s-90's) and sell gold when it starts competing with their fiat money (1970’s & 2001-today). Gold is the most important competitor to fiat currency and full control of the gold market is the #1 requirement of any fiat money system.

Once a “non-gold bug” understands the 3 Gold Camps they will be able to discuss the gold markets on many different levels, and they can start building a knowledge base about gold.  Once they fully understand the motivation of the market participants they will get the “WHY” part of the equation and want to participate in what could conceivably turn out to be the largest bull market in financial history.

Gold at $1,000 was a big deal if only for the fact that it got people’s attention. Now it’s your job to explain the “WHY”.

-- Posted Wednesday, 9 July 2008 | Digg This Article | Source: GoldSeek.com

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