Why do we value gold?

[Tyler Durden]

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?

 

[McLovin]

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.

 

[CanOz]

...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

 

[Glen48]

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..

 

[sinner]

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.

 

[craft]

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.

 

[skc]

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.

 

[burglar]

... Is that possible?

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

 

[im sparticus]

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

 

[Trembling Hand]

come on everyone know you cant eat gold

But you can use it to eat.

 

[skc]

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...

 

[howmanyru]

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.

 

[Gundini]

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!)

 

[skcots]

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?)

 

[burglar]

... 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!!

 

[waimate01]

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).

 

[skcots]

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.

 

[im sparticus]

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

 

[waimate01]

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.

 

[im sparticus]

But you can use it to eat.

now that is Kool