# Why do we value gold?



## Tyler Durden (31 May 2012)

Hello, this might be a silly question but I've been thinking about it...

People say fiat money is not worth anything if we realise that it's not backed by anything and suddenly people decide to reject it. But can't the same be said for gold?

What is so special about gold that makes it acceptable worldwide? What if one day everyone just decided gold was worth nothing? Is that possible?


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## McLovin (31 May 2012)

Tyler Durden said:


> What is so special about gold that makes it acceptable worldwide? What if one day everyone just decided gold was worth nothing? Is that possible?




It's fungible, unlike many metals it doesn't corrode, it's rare (until the discovery of silver in Peru, silver was as expensive as gold), no one can print more (unless you can find a dying star) and it's pretty.


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## CanOz (31 May 2012)

McLovin said:


> ...and it's pretty.




LOL!

Same question could be asked about diamonds...I read somewhere that they are actually quite plentiful but the suply is careful controlled by the 'Cartel' De beers, or _was_...

Rare earth minerals are actually more valuable but not as close to being an 'accepted' currency as gold.

Interesting topic, i can't wait for Uncle to chime in...

CanOz


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## Glen48 (31 May 2012)

Diamonds are abundant and can be created in a  special hydraulic machine,Gold is like water when your plane has crashed in some waste land miles from nowhere and you are lost and the only survivor..


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## sinner (31 May 2012)

Personally, gold is the first 'trade' I was ever introduced to and it has been the focus of the greatest portions of my research.

There are a lot of views out there on gold...the one that rings truest to me after years of reading is that espoused by ANOTHER/FOA/FOFOA.

Since discovering their thoughts I've tried to model my own personal finances to be as closely aligned as possible with the mechanics of the macro-economy as they view it.

There are a couple of exceptions, e.g. I keep diversified cash holdings also as a savings vehicle. Since we live in Australia, our situation is rather different to a lot of other countries (a lot of the time we are naturally 'long' gold). I try to keep that in mind.

ANOTHER:
http://www.usagold.com/goldtrail/archives/another1.html
Friend of ANOTHER (FOA):
http://www.usagold.com/goldtrail/archives/goldtrailone.html
Friend of Friend of ANOTHER:
http://fofoa.blogspot.com

There is a lot of reading there. I recommend all of it for a real understanding of gold, but a lot of people find it too long to get through. 

If I had to pick and choose a few key posts, these would be it (warning, even these are lengthy):
*It's the Flow, Stupid.*
http://fofoa.blogspot.com.au/2010/10/its-flow-stupid.html
http://fofoa.blogspot.com.au/2010/10/flow-addendum.html
*Moneyness*
http://fofoa.blogspot.com.au/2011/11/moneyness.html
*Deflation or Hyperinflation*
http://fofoa.blogspot.com.au/2011/04/deflation-or-hyperinflation.html

Again, I'll say that although the content is lengthy it is really worth a read.


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## craft (31 May 2012)

Why do we value gold?  -  Because others value gold.

Why do other value gold?  -  Because we value gold.


How much do we think gold is worth? However much we think others think it is worth.

How much do others think gold is worth? However much they think we think it is worth.


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## skc (1 June 2012)

Human has used many things as currency before... even shell.

http://en.wikipedia.org/wiki/Shell_money

As Craft said, there is value because other people also value it.

A logical question is to ask "So how did it all begin?". A research on Bitcoin (the latest currency - there's a thread on this forum even) will show you how something can go from having no value to having some value.

Another logical question is to ask "What if one day everyone wakes up and think it's worth nothing?". Well, it's entirely possible. But since human has been treating gold as valuable for thousands of years, the chance of this happening in our lifetime is probably low imho.


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## burglar (1 June 2012)

Tyler Durden said:


> ... Is that possible?




Gold has some favourable properties as a chemical and as a metal.
So no, it is not possible!


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## im sparticus (1 June 2012)

Glen48 said:


> Diamonds are abundant and can be created in a  special hydraulic machine,Gold is like water when your plane has crashed in some waste land miles from nowhere and you are lost and the only survivor..





come on everyone know you cant eat gold


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## Trembling Hand (1 June 2012)

im sparticus said:


> come on everyone know you cant eat gold




But you can use it to eat.


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## skc (1 June 2012)

im sparticus said:


> come on everyone know you cant eat gold




Yes you can. It's used in some very delicate and expensive Japanese cuisines.

You can even buy edible gold here.

http://www.ediblegold.com/ediblegoldleaf.asp

As to why you'd want to do that? It puts a lot of glitter in your poo poo...


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## howmanyru (1 June 2012)

It's a trust thing. If people really believed our central banks and governments had our best intrests at heart regarding the economy, gold would be fairly useless. But as we all know, they are hardly competent, responsible or ethical in managing fiat money. I like the idea of paper and electronic money, but i know if it can be abused it will.


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## Gundini (1 June 2012)

I think scarcity or rarity certainly plays a role in how we value Gold, but the fact it is beautiful and loved by so many for so long, places a true demand for this shiny metal. It has always adorned the people and houses of the well to do. There are few things in this world that are so small, maluable, wearable, durable, unique, and desirable. Silver is similar but not nearly as beautiful, and is more plentiful. Platinum is another but imo overvalued and less desirable. 

But yes, we value Gold by what "they" tell us it is worth... 
(They, being the people that have it!)


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## skcots (1 June 2012)

I dont think you can overlook cultral and religious demands for gold. Someone will always want it.

Someone posted a video above about a German women who lived through WW2. I am sure people like her will always feel safe with gold. Many SE Asian's I know feel the same as well as they lived with massive inflation (1997).

It is also easy to manipulate (mint coins, bullion etc) and its quality verifyable unlike the bartering system (i.e. 10 ducks for your emu?)


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## burglar (1 June 2012)

Gundini said:


> ... It has always adorned the people and houses of the well to do. ...




I once used Tasmanian Oak as fencing rail at half the price of normal rail!

I would use gold as cladding if it was the cheapest cladding around!!


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## waimate01 (1 June 2012)

Tyler Durden said:


> People say fiat money is not worth anything if we realise that it's not backed by anything and suddenly people decide to reject it. But can't the same be said for gold?




Gold is a fiat currency like any other. The only difference is that 'normal' fiat currencies are devalued by running a printing press or tapping zeroes on a keyboard, whereas gold is devalued by stumbling around in the bush digging holes.

In both cases they are a 'placeholder' for wealth, but not wealth itself.

(Gold does have industrial use, but it's incidental to its perceived value. Same as arguing that printed money can also be used as a useful household insulator ... true, but beside the point).


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## skcots (1 June 2012)

waimate01 said:


> Gold is a fiat currency like any other. The only difference is that 'normal' fiat currencies are devalued by running a printing press or tapping zeroes on a keyboard, whereas gold is devalued by stumbling around in the bush digging holes.




Gold and fiat currencies are not alike. Yes, you can dig gold out of the ground but it takes significant effort and will eventually run out.


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## im sparticus (1 June 2012)

skcots said:


> Gold and fiat currencies are not alike. Yes, you can dig gold out of the ground but it takes significant effort and will eventually run out.




you make it sound like peak oil type stuff gold really isnt of much use to us


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## waimate01 (1 June 2012)

skcots said:


> Gold and fiat currencies are not alike. Yes, you can dig gold out of the ground but it takes significant effort and will eventually run out.




Sure, it's harder than flipping the 'on' switch on the printing press, but that doesn't mean it creates wealth in any form, it just places a limit on rampant inflation. Blue seashells take effort to find, and are as valid a currency as gold.

The proof to this lies in the following thought experiment: all heavy elements are baked in the heart of stars. Consider a one billion tonne solid gold asteroid that makes its way towards earth, impacts another nickel asteroid head-on, and rains down a shower of gold that fortuitously is evenly distributed across the face of the earth, with 100kg landing in each backyard. Is every person now rich? Will every person have three rollers and a 150ft superyacht? Of course not. No wealth has been created any more than every Zimbabwean billionaire had a superyacht.

The fact that a (for want of a better term) 'golden [meteor] shower' is vanishingly unlikely does nothing to invalidate the demonstration that gold raining from the sky creates no more wealth than running the printing presses.

It has a value because of a shared belief, not because of anything intrinsic.

As an exercise, one can use the same argument to explain to ones fiance why it is completely rational for one not to buy her a diamond engagement ring. But that works less well.


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## im sparticus (1 June 2012)

Trembling Hand said:


> But you can use it to eat.




now that is Kool


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## Starcraftmazter (1 June 2012)

CanOz said:


> Same question could be asked about diamonds...I read somewhere that they are actually quite plentiful but the suply is careful controlled by the 'Cartel' De beers, or _was_...




Diamonds can't be subdivided into equivalently valuable pieces - the worth of a diamond has to do with it's size. Did you really not know that?


Also, because gold is shiny.


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## CanOz (1 June 2012)

Starcraftmazter said:


> Did you really not know that?




No I'm pretty stupid...:bloated: I need little yellow crapping video game players to tell me the ways of the world. I've only been living. learning and working in this world for 40+ years, on 3 continents.:disgust:

I Have so much to learn, perhaps i should have stayed at home in my mums arms and played video games....:

Then i could be an expert on *EVERYTHING*....like my idol _Starcraftmazter_.

CanOz


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## Starcraftmazter (1 June 2012)

CanOz said:


> No I'm pretty stupid...:bloated: I need little yellow crapping video game players to tell me the ways of the world. I've only been living. learning and working in this world for 40+ years, on 3 continents.:disgust:
> 
> I Have so much to learn, perhaps i should have stayed at home in my mums arms and played video games....:
> 
> ...




There's no need for jealously; though I too would be unhappy if I did not know the properties of diamonds by the time I reached 40


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## im sparticus (1 June 2012)




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## Sean K (1 June 2012)

Starcraftmazter said:


> Diamonds can't be subdivided into equivalently valuable pieces - the worth of a diamond has to do with it's size.



No, you are incorrect on both counts.
:fan

This thread is a dirty rotten steamer.


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## young-gun (1 June 2012)

im sparticus said:


> now that is Kool




Glad you like it spartacus, this is why I have some gold so when the time arises, i can set myself up with a mean set of grills.


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## Sdajii (4 June 2012)

If some objective observer was watching us, the humans on this planet, they'd be totally puzzled by the gold issue.

Imagine, say, aliens turned up and were checking us out. They'd see our activities. Okay, we cover large areas of land with crops so we can eat. Yep, that makes sense, it's a huge industry and we need it to live, sure. We mine things like iron and copper and aluminium so we can build stuff, have buildings, vehicles, etc. Yep, that makes sense. We dig up oil and refine it so we have a source of energy to fuel our activities, sure, that makes sense. All these things carry value because we need them, we use them, we would not live well (or at all) without them.

Then they would look at something like gold. This big industry, this 'precious' substance which so much resources are devoted towards producing. Okay... that seems interesting... so once this shiny yellow metal is produced, what is done with it? It is made into bars and then stored in warehouses where it sits idle and ignored, yet people pay massive amounts of wealth to choose who owns the stuff? What the? Okay, so it's useless now (well, it has some trivial uses but obviously if the majority is just shoved away in warehouses they are irrelevant), but does it have some future use or value to explain things? If, say, there was some cataclysm, some war, some food shortage, could it be used to help feed or clothe or house or rebuild? No? It would become even less valuable then than it is now, and the owners wouldn't even be able to reach it if they wanted it (how many gold owners own their gold as physical gold at their own house or burried somewhere they can access?), so ownership would not only be meaningless as it is now, but not even the case.

...those observers really would think the gold bugs were morons.

Gold is not the most rare or the most useful substance on the planet. Its value is almost entirely foolish sentiment and tradition. If it was functionally valuable we would be using it, not storing it. We can't produce more. So what? We can't produce more of any element.

I expect the gold bubble to completely and permanently burst in about 10-30 years. Over the next 10 years I'm really not sure what will happen, but it's one of the least enticing investments I can think of. Extremely risky, it's an obvious bubble, a guarantee of investing in something useless with value based purely on sentiment with nothing to back it.

The bursting of the gold bubble is inevitable. If nothing else, in the more distant future when our mining is extraterrestrial, gold will become cheaper (easier to obtain) than things like iron. I have no doubt the bubble will burst before then. If gold is cheap and abundant in the future, we'll actually probably start using it, but only because it is cheap and freely available, which means prior gold investment will have been a waster effort.


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## Starcraftmazter (4 June 2012)

You need to understand the concept of "store of value".


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## moXJO (4 June 2012)

waimate01 said:


> Sure, it's harder than flipping the 'on' switch on the printing press, but that doesn't mean it creates wealth in any form, it just places a limit on rampant inflation. Blue seashells take effort to find, and are as valid a currency as gold.
> 
> The proof to this lies in the following thought experiment: all heavy elements are baked in the heart of stars. Consider a one billion tonne solid gold asteroid that makes its way towards earth, impacts another nickel asteroid head-on, and rains down a shower of gold that fortuitously is evenly distributed across the face of the earth, with 100kg landing in each backyard. Is every person now rich? Will every person have three rollers and a 150ft superyacht? Of course not. No wealth has been created any more than every Zimbabwean billionaire had a superyacht.
> 
> ...




or enter the age of nanobot mining which will happen at some point in the future


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## disarray (5 June 2012)

Sdajii said:


> Its value is almost entirely foolish sentiment and tradition.




hi there, welcome to humanity. can i interest you in a religion? or perhaps a social concept like marriage?



> I expect the gold bubble to completely and permanently burst in about 10-30 years.




absolutely. i am firmly of the belief the free market will have us mining asteroids in 25 years time making a whole bunch of commodities crash. doesn't mean i'm not holding gold to ride the foolish sentiment train while the financial system does its best lemming over the cliff impersonation.


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## im sparticus (5 June 2012)

Starcraftmazter said:


> You need to understand the concept of "store of value".


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## lurker123 (5 June 2012)

waimate01 said:


> Gold is a fiat currency like any other. The only difference is that 'normal' fiat currencies are devalued by running a printing press or tapping zeroes on a keyboard, whereas gold is devalued by stumbling around in the bush digging holes.
> 
> In both cases they are a 'placeholder' for wealth, but not wealth itself.
> 
> (Gold does have industrial use, but it's incidental to its perceived value. Same as arguing that printed money can also be used as a useful household insulator ... true, but beside the point).




+1, except for the comparison with using paper money as insulation. Gold has very high industrial value, the only reason we don't use more of it industrially is because of its scarcity and current value. 

from wiki, https://en.wikipedia.org/wiki/Economic_history_of_Spain:


> Gold and silver bullion from American mines were used by the Spanish Crown to pay for troops in the Netherlands and Italy, to maintain the emperor's forces in Germany and ships at sea, and to satisfy increasing consumer demand at home. However, the large volumes of precious metals from America led to inflation, which had a negative effect on the poorer part of the population, as goods became overpriced.




When the Spanish started using too much of the gold they acquired from plundering the Americas at the same time to pay for things, it caused inflation of gold. Of course since we have pretty much explored the earth, it is unlikely for another huge source of gold to be found on earth so this is unlikely to happen now.

Note that I do say unlikely, but nothing is 100%. Who knows maybe technology will advance to the level where we can start mining other planets. Personally I think humanity will wipe itself out and this is unlikely to happen. Another possibility is that technology advances to the level that energy becomes extremely cheap. 

With cheap energy, from wiki, https://en.wikipedia.org/wiki/Synthesis_of_precious_metals:


> *Gold synthesis in an accelerator*
> 
> Gold synthesis in a particle accelerator is possible in many ways. The Spallation Neutron Source has a liquid mercury target that will be transmuted into gold, platinum, and iridium, which are lower in atomic number.
> 
> ...




Gold has no value except for the fact that other people value it. This gives gold its value, and if other people stop valuing it, it loses value. However even when other people stop valuing it as a store of wealth, it still has value because it is useful in industry. Paper money is the same, once other people stop valuing paper money as a store of wealth, it loses its value. The difference is that paper money loses its value to worthlessness. Why use paper money in industry, when you can just use paper.


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## Gundini (6 June 2012)

Why is everything so technical these days? Gold is simply beautiful! I wish my rod was made of pure gold. I didn't have enough spare cash for that so I had it bronzed.


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## Glen48 (6 June 2012)

I have to Popsicle sticks and a roll of insulation tape at least my tatt of a tinnie  still turns in to an Aircraft carrier when aroused.


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## Starcraftmazter (6 June 2012)

By the way - has anyone mentioned that *Gold can't be printed* yet?


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## waimate01 (6 June 2012)

Starcraftmazter said:


> By the way - has anyone mentioned that *Gold can't be printed* yet?




I presume you're saying it cannot be produced arbitrarily.

At least a printing press takes some sort of skill to build and operate. Gold can be, and has been, turned up by happenstance. 

I'm not sure either qualifies as an unassailable storehouse for wealth.


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