Is gold an efficient store of value? (2003)
This 2003 paper analyses the properties that would make commodity money efficient through a theoretical analysis, using Gold and Tobacco as examples. The abstract states that:
Gold and Tobacco have been used as commodity money. One difference between the two is that gold yields utility, on account of its beauty, without diminishing its quantity. Tobacco yields its utility when it is consumed. If this were the only difference, which would be better money?
This paper uses a two period model of transactions, with no uncertainty, where there is only one type of money used in all transactions either gold or tobacco, i.e. all money is a commodity.
The authors find that for a durable commodity, like gold, to be efficient as money there must exist both a sale and a rental market for the commodity in order for consumption to be smoothed between periods. The authors say that gold is not an efficient store of value as there is no rental market for it. However an active rental market does exist in the lease market for gold. Please see the LBMA website for further details http://www.lbma.org.uk.
Full Citation: Dubey, P., J. Geanakoplos, et al. (2003). “Is Gold an Efficient Store of Value?” Economic Theory 21(4): 767-82.