Wade Gold Investment Forum 2012 Yellow Capital Wealth Management Welcome

Contents Introduction Welcome Origin & chronology of Gold Characteristics of Gold Medium of Exchange Currency The context of Gold as a currency in modern times Summary Q & A Session

Introduction Haydn Ellwood – Managing Director & CIO at Yellow Capital Wealth Management Welcome In this session we will look at the concept of gold as an alternative currency. Let’s just ponder that thought for a moment! Does it seem odd to use gold as a currency in this modern fast moving world of finance and business today? Origin & chronology of Gold Gold is thought to have been formed from a supernova nucleosynthesis process [From the explosion of stars].supernova nucleosynthesis Gold was first mined in 4000BC in the Transylvanian Alps. It was mined to fashion decorative objects.

In 3000BC in now what is known as Southern Iraq gold was used in jewellery. 2500BC gold becomes a recognised medium of exchange for international trade and contributes to Egypt’s vast wealth. 1091BC small squares of gold are legalised by China as a form of money. 1284AD Great Britain issues first major gold coin. 1377AD Great Britain adopts a monetary system based on gold.

Characteristics of Gold Gold does not rust or suffer from oxidation in water or air unlike other non-ferrous metals it is immune to acid attack it cannot corrode or be destroyed [indestructibility] malleable and merely changes it shape or form Gold always shines and it never loses its lustre

Medium of Exchange A Medium of Exchange’s most important and essential function is that it is a 'measure of value‘ A medium of exchange is an intermediary used in trade to avoid the inconveniences of a pure barter system.tradebarter 1.value common assets 2.constant utility 3.low cost of preservation 4.transportability 5.divisibility 6.high market value in relation to volume and weight 7.recognisability 8.resistance to counterfeiting

Medium of Exchange continued Gold’s popularity It should have constant intrinsic value and stable purchasing power. convenient to move due to even small amounts of gold having considerable value constant value due to its special physical and chemical properties

Currency Advantages Reduces the transport costs, Reduces the risks with transporting gold, Makes loaning the specie [gold] easier, [the origin of banking] Makes the division of currency into credit, [the origin of fractional reserve banking] Disadvantages Paper notes have no intrinsic value, Nothing to stop authorities from printing more than the specie to back it with, Increased money supply leads to inflationary pressures and credit bubbles, Printing of excess money is often associated with wars and the financing of wars,

The context of Gold as an alternative currency The classic gold standard Individuals and banks carried and stored physical gold coins and paper notes are fully redeemable in gold. The fulfilment of the words ‘I promise to pay the bearer’... The gold exchange standard Foreign treasuries and central banks are forced to redeem their debts in gold, Paper money in circulation is backed by gold Gold becomes the common numerator in the international trade system

Summary Gold has always been money and an international currency. It remains the underlying asset of paper money, for paper money is merely a derivative of gold. Gold performs when the value of paper money erodes, whether that is absolutely or relatively. When governments deficits are high, real interest rates are negative and money supply is growing exponentially – gold always performs its duty as a store of wealth. Gold is accepted anywhere in the world as a means of payment, it is not controlled and manipulated by politicians. Gold has what is known as a stateless money franchise