Thank you! Gold has no intrinsic monetary worth, except what some guy is willing to pay me in usable paper currency for it. If we were two cave men and you wanted to trade me that block of yellow mass in your hand for the brilliantly red ruby in my hand ... are you f'n NUTS???? My stout little hairy woman would leave me after that display of genetic unsuitablility.
Why is Gold worth even $314 an ounce? I say it is worth $10 a pound. If men stopped outrageously overpaying for wedding rings - the market would crash.
Gold Bugbears - A sucker's rally?
From the 5/30/2002 Economist
GOLD bugs rejoice. The patience of those who stand by gold through thick and thin has been rewarded recently with a rising price. Gold has now risen to near its most recent peak of $330 in 1999, when central banks announced a moratorium on new sales of their bullion stocks, though the price then fell back to earth again. The current rally is especially surprising, since gold barely moved after September 11th, when it might have been expected to rise. Trot out some new suspects: a weak dollar, tension in Israel, India and Pakistan, and the desire of Japanese savers for a safe haven.
Gold's new strength has even made bulls of some ex-bears. One of these, Andrew Smith of Mitsui Global Precious Metals, who expects the price to hit $355 an ounce by December, has turned bullish for none of the usual reasons. He ascribes gold's present good fortune to a broad shift out of American shares and bonds—because of an Enron-induced malaise—rather than to any revival in gold's role as the ultimate store of value. Gold's rise merely follows that of other commodities, keeping pace with platinum and silver, but with none of nickel's panache. Gold has, in effect, become just another form of alternative investment, like property, hedge funds or art.
Some bulls, though, take heart from a decline of hedging by gold companies. Such companies chose to protect the price of their future gold production by forward sales or by fancy financial options. These tactics were weighing prices down, it is argued. Nowadays, low lending rates have made the forward price less attractive. Companies that do not hedge have taken over some that did: for example, Newmont's buyout of Normandy. And a new push for accounting transparency has made many wary of the complex derivatives used by some hedgers.
Yet declining amounts of hedging may not be enough to keep the gold price up. The world's central banks hold some 30,000 tonnes of gold in their vaults. Mr Smith notes that AngloGold is trimming its hedging only at the same pace that the Swiss National Bank, owners of a massive hoard, is selling. Who will prevail in such a contest? “Place your bets,” he says.
Indeed, the long-term outlook for gold might mirror the fate of silver. A century ago, central banks hoarded silver as they do gold today, and it had a similar status befitting its role as a monetary metal. But now that central banks no longer keep silver reserves, the metal's purchasing power is back where it was at the beginning of the 19th century. By this measure, if central banks were to abandon gold, it would be worth around $68, says Mr Smith. Enjoy the run while it lasts.
It would not affect the overall market for gold at all. The price of gold does not fluctuate because of the rise and fall in consumer interest in jewelry. As the gold price rises the margin on gold jewelry actually increases because people buy more of it because gold is rising and they want the gold because their money ios falling.
Men will always try to impress women and so the market will never crash.