By Karen Brettell
(Reuters) – As inflation hits its highest level in four decades, Utah business owner Steve Allred worries about the U.S. dollar’s declining purchasing power.
To help hedge against the possibility of the situation worsening, Allred, like many investors, bought gold. He also began accepting some forms of precious metal as payment at the three hardware stores he owns with his brother.
Allred is among a group of Americans increasingly turning to gold as an alternative currency as unprecedented government spending and Federal Reserve easing threaten to further erode the value of the greenback.
The dollar has lost 86% of its purchasing power since 1971, according to US government data, when President Richard Nixon ended the dollar’s fixed convertibility into gold. Gold prices rose from around $40 an ounce to $1,900 during this period.
In addition to its use in jewelry, central bank reserves, and some industrial applications, gold has long had avid proponents who believe it retains its value better than fiat currencies like the dollar because governments can issue debts and print money at will.
US dollars in circulation stand at $2.25 trillion, up from $1.80 trillion at the start of 2020 and just over $800 billion in 2007, according to Federal Reserve data.
GRAPHIC: Currency in circulation – https://fingfx.thomsonreuters.com/gfx/mkt/jnpwerablpw/Currency%20in%20circulation.JPG
The use of gold as currency began to gain traction after the 2007-2009 financial crisis and accelerated during the pandemic since 2020 as the government spent trillions and the Federal Reserve purchased unprecedented amounts bonds with the aim of reviving the economy.
Although it does not challenge the primacy of the greenback, its use is growing rapidly. Innovations that allow people to use the metal for even the smallest daily transactions are helping to propel the movement.
Allred began accepting Goldbacks in its stores about three months ago. This currency is infused with gold particles and comes in denominations ranging from 1, or 1/1,000th of an ounce of gold, to 50, or 1/20th of an ounce.
During this period, Allred customers purchased between $3,000 and $4,000 worth of merchandise using the currency. He hopes the use of the notes will increase and that it can be used for a wide variety of goods and services in his community, especially if the greenback continues to depreciate.
Jeremy Cordon, founder and chairman of Goldback Inc, said about a quarter to half of Utah small businesses would accept the notes. The company has sold around $30 million across the country and Cordon believes the Goldbacks could grow to around $1 billion in the next five or six years, although the speed of growth will be limited by how quickly the company can print money.
Jason Cozens, founder and CEO of gold trading and investing app Glint Pay, has also seen strong demand for using gold as currency.
Clients can use Glint to buy gold, which is kept in a vault in Switzerland, and spend their holdings with a Mastercard. Cozens says about half of its 105,000 customers are in the United States and registered users increased 500% in the first quarter compared to the fourth quarter.
“The money we use in less than a person’s lifetime has lost most of its purchasing power and that’s what drives everything,” Cozens said. “You start thinking, ‘Well, why is money depreciating? Why is it out of my control?’
GRAPH: Purchasing power in dollars – https://fingfx.thomsonreuters.com/gfx/mkt/lgvdwgnqwpo/Dollar%20purchasing%20power.JPG
In some ways, interest in gold currencies overlaps with the cryptocurrency movement, which is popular at least in part due to a desire for decentralized financial systems. People are looking for more privacy as cash becomes less common and digital currencies offered by the central bank risk giving certain institutions more control over people’s finances than ever before.
Exact figures on how often gold is used as a means of payment are not available because the transactions are private. Joe Cavatoni, Regional CEO, USA, at the World Gold Council, said gold is more popular as an investment because it performs well in times of uncertainty, although state governments are also removing some barriers to its use as currency.
Utah recognized gold and silver as legal tender in 2011, and Oklahoma and Arizona followed suit. States are increasingly lifting tax restrictions.
Jp Cortez, director of policy for the Sound Money Defense League, said 41 states have fully or partially exempted gold and silver from sales taxes, and 5 more are considering legislation to do the same.
The group is also working with lawmakers to remove capital gains taxes. Arizona has eliminated the state capital gains tax on precious metals, although most states continue to levy it and taxes are also payable at the federal level.
Cortez notes that at the end of the day, “if you can’t deduct capital losses from the value of the dollar, we shouldn’t be taxed for capital gains when that gain on the price of gold doesn’t isn’t really a gain – it’s just a representation of the dollar’s loss in purchasing power.
(Reporting by Karen Brettell in New York; Editing by Alden Bentley and Matthew Lewis)