Posted on 07/10/2013 7:26:11 AM PDT by Errant
Thank you all.
When you consider that prices, interest rates, and margins are mostly manipulated now by central governments, banks, and mega corporations, instead of allowed to seek their levels by free market discovery, it explains much.
And the question is, WHY?
Yes, it seems to be true historically. People have always accepted gold, because gold can "always" be retraded, because someone else "always" wants it, because they know they can retrade it.
But why? Note that operative word in gold is "retrade" -- i.e. we want gold because it can always be TRADED for something that is actually useful.
In ancient times, Gold was valuable because it was shiny and easy to work, and rare. You could prove how important you were by showing how much wealth you were willing to throw away on a shiny rare metal you could melt and mold around things. Like fancy clothes, or a palace with 10 times the rooms you need.
Nowadays, we can make shiny things with any metal, and the number of people who wear gold bling to show how rich they are by how much they can waste is ebbing some, but not much.
When we are all starving to death, who is going to trade you a loaf of bread for an ounce of gold?
Gold has always been tradeable, and has held constant value. But it appears to be all psychological. The actual use of gold is far outstripped by supply. If one day the world comes to it's senses and realizes that gold has no value on it's own, gold will be essentially worthless.
That day may never come -- but it COULD come. There is nothing that would require people to buy gold, the average person has absolutely no direct use for it, and no law requires anybody to accept gold as payment for anything.
Remember, everything you can collect has great value until the day it doesn't. Like Beanie Babies.
Last lesson. If you bought a DaVinci painting with gold while DaVinci was alive, which would be worth more today -- the same amount of gold, or the painting?
Oil is actually useful. If you have oil, you have energy. If you have gold, you have something that is of no use to you, unless you can find someone else who has something you need who is willing to trade it for your gold.
With gold, you are always beholden to the whims of others. If you own the actual things you will need, you are beholden to nobody.
If food was imperishable, would you rather have enough gold to buy all the food you need for the rest of your life, or to actually HAVE all the food you need for the rest of your life?
“Nowadays, we can make shiny things with any metal.”
“If one day the world comes to it’s senses and realizes that gold has no value on it’s own, gold will be essentially worthless.”
What use has any metal but what it can be used for, not just a medium of exchange but to make things. Gold is and has always been THE best metal. Other metals rust and disappear, or tarnish, and need to be reshined. Not gold. Gold can be made super thin to be used in wiring or in electronics, it can be made into tooth fillings which won’t disintegrate or rust away, etc.
If metals will always have a value, then gold will always have a value because no metal comes on par to it, except perhaps platinum, which is even more expensive. And I don’t think even platinum could be pulled from the bottom of the sea after a thousand years and be used like it was only yesterday.
And, when aggregate demand increases because of the inflationary increase in the money supply, that also tends to cause a rise in prices including the price of gold.
Yes, but with PMs, you have a huge paper market. I believe many are looking for a divergent between paper and physical markets at some point due to shortages of physical.
Gold has some use, but the amount of gold we need for the uses you mention is much less than the supply of gold we currently have available.
Gold is hardly “the best metal”. We could argue over what metal is the best. Aluminum is certainly a highly useful metal, used for construction, for preserving food, for electronics, for insulation, for holding our beer and soft drinks, for baking, for cars and trucks, and many other uses.
Of course, Iron/Steel is probably the winner of the “necessary for modern life as we know it”.
Lead of course has a wide list of uses. Copper/brass/bronze are also highly useful in a multitude of places where gold would be useless.
Gold is too soft a metal to have much value in any form of construction. At least you can make bowls and silverware out of silver; a gold knife wouldn’t be nearly as good as a silver one, or a steel one.
Gold will always have some value, because it does have a range of uses especially in electronics. But 65% of gold that is used is used for jewelry. 25% is used in electronics, and 10% is used in other industrial applications, such as thin film applications for window tinting.
And yes, if used with other metals, it can be used for things like goblets and other applications where a harder metal is used.
But if you take into account the gold that is used solely as a medium of exchange, and the amount used for things like jewelry, you can see that, if people lost interest in gold today, we’d have enough gold for years of practical use, plus a current supply chain that currently overproduces by a factor of 2.
I don’t think Gold will ever become worthless, at least not in my lifetime. But my point is that the only thing propping up Gold prices is the expectation that Gold will remain valuable to people. The current valuation is a psychological value, not a physical value.
That barborous metal, gold.
Gold is solely a medium of exchange ? Really, dude. Do some homework. Google is your friend.
I think you need to work on your reading comprehension, before you give out assignments to others.
You’re right to some extent but every differnt metal (or other substance) is useful in different ways. You could never construct a building with gold since it’s not strong enough. But give somebody a bunch of steel or aluminum coins as payment and leave them in a room with a leaky roof. They’ll rust away. The ice cream taster at Ben & Jerry’s uses a spoon made of solid gold, because every other metal would affect the taste.
Gold, like anything else, has a natural price in relation to everything else, and perhaps it’s been inflated since every other item seems worthless in comparison. Things that last will always have value. I don’t think it’s psychological. Ever read The Power of Gold, by Peter Bernstein? Great book.
You are correct that gold has a premium over other PM's for non-commercial reasons. Where i disagree is that the reasons are psychological. They are experiential. Gold has proven over historical times to be a store of value.
The ratio is rapidly changing as more and more uses for gold are being found. It is the number one material of choice for electrical connections and new nano particle uses are on a tear...
Only yesterday I saw a new technique for using gold nano particles in human waste disposable. Who knows what future uses may be.
Shouldn't the B&J taster calibrate the ice cream to a spoon material common to the typical end user?
Perhaps the reason I don't care for Ben & Jerry's is because I've been eating it with silverware...
We have QE3 continuation, 4% monetary growth, real price inflation, debt monetization that are all positives. The one future negative might be real interest rates. Right now they are negative, which is good for gold. But will interest rates rise sharply enough to produce a positive real rate of return?
Waste of time trying to predict these manipulated markets. This government is going to continue deficit spending, Fed is likely to continue support through QE, Mass Derivative Bomb out there, trouble in the Middle East will likely escalate. I'm basing my decisions on the above with the need for diversification in mind.
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