“You can’t eat gold.” The enemies of gold often unleash this little zinger, as if it dismisses the idea of owning gold and indeed the whole gold standard. It is a fact, you cannot eat gold. However, it dismisses nothing.

This gives us an idea. Let’s tie three facts together. One, you can’t eat gold. Two, gold is in backwardation in Switzerland. And three, speculation is a bet on the price action.

The fact that gold is inedible is supposed (by the enemies of liberty) to be proof positive that a gold standard wouldn’t work. Of course, there’s always the retort: You can’t eat dollars!

That may be emotionally satisfying, but there is a deeper issuer that the anti-gold crowd is missing. Yes, money makes terrible food but, also, food makes terrible money. A car makes a lousy airplane. And a shoe makes an awful TV. Cow poop is putrid as food for people, but it works well as fertilizer for plants. Each thing fits a particular purpose.

Why does food make terrible money? One reason is that it’s perishable. No one—other than a refrigerated warehouse—can make a bid on food beyond his own short-term needs. Without this robust bid, food has limited marketability. That is, it has a wide spread between its bid and offer prices.

Think of it in human terms, or even personal terms. Suppose you strolling along the sidewalk, and you’re hungry. You see a restaurant sign, “Hamburger + fries + drink $10.” You would pay the offer price. The next restaurant is going out of business, and its sign says, “All inventory must go! 50 hamburgers and 50 pounds of fries for $100!” You would not pay it (unless you were with 49 friends).

Why not? It’s because you can’t possibly carry 49 juicy hamburgers and 49lbs of hot, greasy fries with you as you walk! The bid price is zero or nearly zero. So the bid-ask spread on food is quite wide.

Other than for eating, a hamburger serves no purpose. And you only need to eat a finite amount (unless you are Hafthor Bjornsson). Any burgers beyond that are of no value to you, because they don’t keep very long. You don’t want to stockpile them.

Economists would say that the marginal utility of hamburgers falls rapidly. The first hamburger satiates your hunger. The second fills you up. The third, well, maybe you were really hungry. The fourth doesn’t do anything for you. It’s useless.

Gold is in Backwardation in Switzerland

Now we switch to the second topic. Gold is in backwardation in Switzerland. What does that really mean in human terms? It means you can give up your 100oz gold bar for 3 months, get free use of about CHF 120,000 in the meantime, and in the end get your gold bar back. Plus about CHF 400 in profit.

No one is taking this deal.

Let that sink in. Lots of people have these gold bars. Which they cannot eat, as we have already proven. But they won’t let them go for even three months. The free use of francs and the profit are not attractive. This either means they don’t trust their counterparty to give the gold back, or else that the francs are even more useless than the gold.