Post: #1

Reading the RoK article on bitcoin today, and some of the dissenting opinions in the comments section favored gold instead of bitcoin. I'm loosely familiar with the gold standard but I don't quite get why gold is so inherently valuabe. Can anyone explain in layman's terms?

Post: #2

The hamster.

The hamster thinks gold is valuable because it's shiny.

Post: #3

The use of gold in modern dentistry has elevated its status to the most valuable element due to its usage as a critical component in Grill Upgrades. Hip hop artists use gold as a way to enhance their smiles, and the market has followed, which has led to an explosion in gold mining across the globe.

Post: #4

rarity would be my guess

Post: #5

Gold is valuable because of its scarcity. However one might say that the reason gold is valued is because people have been using it for so many years as a form of currency or as backing for their currencies that it retains value in the minds of the people. Gold is valuable because people perceive it to be valuable. Why is it perceived to be valuable? Because people consider it to be valuable, it is a self perpetuating cycle.

Post: #6

If the entire world financial system goes to shit, if governments and countries fall, the one thing you can bet on with 100% security is that, in the future, however things shake out, people will value shiny metal.

Post: #7

The short answer is that gold has been treated as money for millennia by nearly every culture than came in contact with it.

The longer answer is that gold meets all the criteria for money better than anything else. It's rare, it's durable, it's divisible, it's portable, it's difficult to counterfeit, it has commodity value as jewelry and it can't be inflated with a computer or a printing press. So it's very easy to see why gold was the preferred form of money until relatively recently. And given the current state of the world economy and the health of the various fiat currencies of the world, there's still a strong case to be made for gold (although I wouldn't recommend having most of your assets there).

Post: #8

Imagine if central banks around the world all used a gold standard for their currencies. One day, after all of us here are long gone I'm sure, and all the gold in the world has been mined from the earth, inflation would cease to exist.

Post: #9

The above answers are excellent explanations to your question.

I agree with DChambers on this one but I must add that precious minerals like gold, silver, and copper have been forms of currency since the institution of culture in to the world. The time frame of introduction? When we moved from tribal communities in to structured civilizations.

Somewhere in history, someone had the idea," hey let's take all the food. Lock it up, and force people to work for it. We'll give them gold, silver, dollars, whatever for their work; they will then turn around and give it back to us for food."

Essentially, we can control the population to do as we want since we'll control the food supply.

With that being said, there is no inherent value to gold. Its only value is that you have to spend your time (inherent value) to work for gold ( perceived value) to pay for food (intrinsic value)

"Some people dance for 8 hours a day, some dance for 12 hours.

Few of them dance for only a few hours. They dance long enough to earn their food and they spend their days enjoying their lives"
- a paraphrased quote from "my Ishmael"

Post: #10

Gold experiences what Carl Menger called 'anomalous demand,' because people will attempt to coalese around a medium for savings and gold has a head start on other commodities for historical and practical reasons. You can ask a hundred people the question at the top of this thread, but his answer, as refined by Mencius Moldbug is the best. For an updated exposition of it, do a web search for 'moldbug member' and get ready to follow some links.

Post: #11

It's expensive because bascially, gold is the residue of a Supernova and cannot be reproduced, ever. Hence, it's scarce.

Post: #12

Apparently monkeys like shiny objects and will even stash them in a safe place...a sort of primitive banking system when you think about it. At a certain level we're no different.

Post: #13

This is what Warren Buffet said about gold and I agree with him for the most part:

Quote:Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.

Its value is solely based on irrational exuberance or depression. Historically it is known for having big spikes in appreciation then steep declines when everyone heads for the exit. It doesn't do all that well against inflation.

If you're going to pick metal to invest in or buy and hold then at least pick something with utility. You're not going to have a bunch of copper laying around of course but it's probably a better investment (long term) to invest in copper or the steel industry over gold.

Post: #14

Gold is rare, but it isn't totally useless. It has some unique properties that make it useful in industry and science. Gold doesn't corrode like other metals (even when left in sea water for hundreds of years) and is a sensational conductor of electricity, making it useful in a variety of functions that other metals aren't.

Gold particles are used to move substances through the human body. Gold sheets are used to reflect the suns ray from instruments. Gold is used for particular functions in semi-conductor technology.

If I'm not mistaken, gold is even one of the precious metals that repels sharks.

Post: #15

Warren Buffet was being intentionally obtuse. Of course gold is a bad investment. Because gold is not supposed to be an investment. It's money. It's a store of value, not a means to acquire a return on existing capital.

Don't think of gold in relation to a stock or a bond, think of it in relation to currencies. Gold is a unique currency that has no nationality, and which cannot be printed into existence. In the age of fractional reserve banking and fiat currencies, gold stands totally apart in this regard.

People don't understand gold because they have been intentionally misled to view it as an investment rather than as currency. Gold is real money (which stores value over time) that can act in the function of currency (which allows for transactions and payments).

To understand the purpose of gold, consider the following. Imagine you opened a time capsule that had been sealed one-hundred years ago in 1914. Inside the time capsule were three things: $1,000 worth of paper U.S. dollars from 1914, a $1000 stock certificate from a major corporation in 1914, and $1000 worth of gold in 1914.

What would each be worth in 2014?

Well, your $1000 in 1914 cash wouldn't be accepted as currency. You might be able to sell them to a collector for a few hundred bucks. Your $1000 stock certificate would most likely be to a company which no longer existed, and if the company did still exist after countless mergers and ownership changes, they would simply laugh at your ownership claim and tell you to sue them if you had a problem.

The gold would be worth about $75,000 though. Did it appreciate it value? Was it some amazing investment? No. It just didn't lose value. It did exactly what it was supposed to - it stored value over time. Your $1000 worth of gold in 1914 is worth $75,000 today, or put another way, your 2014 dollar is worth 1/75th of a 1914 dollar.

Post: #16

Think of gold as currency insurance. You buy it knowing full well the price of it could plummet. It's better to have it and not need it, than to need it and not have it.

It's also a good thermometer to tell when the national currency is sick. If people start losing confidence the temperature rises. Ie the price. If it drops, the currency is regaining value and people are feeling better.

Post: #17

One very important property of gold today is liquidity. If I hold a pound of gold in my hand today, I truly posses it and can use it to purchase stuff given some sort of secure environment.

If I have, say, $20,000 in my bank account, first the bank may really only have $1,000 thanks to fractional reserve lending (lending out more than exists.) Second, at any time the bank can freeze withdrawals and I have access to $0.

There are other items you can use as currency, but for gold, anyone anywhere will generally accept it as a form of payment. Want to buy something from me with Venezuelan bolivars? No thanks.

Post: #18

(08-30-2014 04:56 AM)BoiBoi Wrote:  It's expensive because bascially, gold is the residue of a Supernova and cannot be reproduced, ever. Hence, it's scarce.

We have the technology to produce gold from other elements. It's just amazingly inefficient, and thus amazingly expensive, to do so.

The best answer to the OP's question is gold is valuable because people agree it is. The same can be said of gem quality diamonds, sapphires, etc. Hell, aluminum used to be worth more than gold despite being 8% of the lithosphere because it was so difficult to refine.

As for keeping physical gold as a hedge against inflation, well... remember the 1934 Gold Reserve Act? I'll be surprised if private gold ownership in the US isn't outlawed again in my lifetime. Just something to keep in mind.

Post: #19

Fact I read:

If you put all of the gold in the world in a cube, it would be 60 ft x 60 x 60.

It would fit on a baseball diamond.

Post: #20

(08-31-2014 02:07 AM)weambulance Wrote:  

(08-30-2014 04:56 AM)BoiBoi Wrote:  It's expensive because bascially, gold is the residue of a Supernova and cannot be reproduced, ever. Hence, it's scarce.

We have the technology to produce gold from other elements. It's just amazingly inefficient, and thus amazingly expensive, to do so.

Are you sure? Theoretically, it might be possible but has it ever been done?

Post: #21

@ Sp5

Pretty sure that's just the gold that's been mined, though it might include known reserves. There's a lot of gold we haven't mined out of the crust yet, plenty of it at depths where we can't get to it economically, and what gold there is in the crust is a miniscule fraction of the total amount of gold in the whole planet.

Not much detail, but an interesting short article about the gold at the planet's core: http://discovermagazine.com/2006/sep/innerfortknox

@ BoiBoi

Yeah, Glenn Seaborg did it in 1980 and they can do it with particle accelerators. But we're talking like 0.000000000000000000001 grams at a shot here, if that.

Relevant paper: http://escholarship.org/uc/item/7pk4c5xt#page-2

What makes an atom a particular element is just how many protons it has, right? So if we can rip atoms apart (nuclear fission) or smash them together (nuclear fusion), we can turn atoms from one element into another. It's just not something that we can control well or scale at this point in time, except a few easily understood and controlled decay reactions where we basically just sit back and let nature take its course. I'm sure in a few hundred years, if civilization in general doesn't collapse and set humanity back, the technology will be refined so we can synthesize specific isotopes at will. Barring some amazing advances in energy production it's always going to be very expensive, though.

Much more interesting than that is there's a team of scientists trying to take a crack at making matter out of photons. http://www.theguardian.com/science/2014/...-positrons

Edit - More detailed article on the photons-to-matter thing: http://www.latimes.com/science/scienceno...story.html

Post: #22

@weambulance

Interesting. Thanks

Post: #23

(08-30-2014 01:13 PM)scorpion Wrote:  Well, your $1000 in 1914 cash wouldn't be accepted as currency. You might be able to sell them to a collector for a few hundred bucks. Your $1000 stock certificate would most likely be to a company which no longer existed, and if the company did still exist after countless mergers and ownership changes, they would simply laugh at your ownership claim and tell you to sue them if you had a problem.

I need you to call you out on this. You seem to be cherry picking.

The $1000 in 1914 bills would be worth at least face value. We aren't talking confederate or Prussian dollars from a country that doesn't exist any more. They'd be worth at least that much. But under the same assumption 'they wont be accepted because they're old' maybe they could be very rare notes worth hundreds of thousands. The point is that cash makes a very bad long term store of value.

The gold in real terms would have more or less stored its value. It wouldn't have really appreciated though. Even then its subject to the whims of the market. 10 years ago it was at $400. If something can change +/- 5x in a timespan of 10 years, its hardly a reliable store. At best you can expect to be able to buy the same thing later that you can buy now.

The point I really take issue with is that you just assume the stocks are worthless. The stock market is probably the best long term way to store money. Because in general not only does it store the value, but it builds it. The Dow was at 71.42 when it closed on July 30, 1914 for 4 months. Today its at what? 17098. To spout hogwash that since "the company probably doesn't exist any more and they'd make you sue them" when you're looking at a real gain in the market of 239x vs golds 75x(and that's only because of the crazy bull run on gold the last 10 years) makes gold a distant second as an investment.

Post: #24

Gold and the other precious metals are not without intrinsic value, in fact I don't think we've heard the last of using these metals for technology and other purposes. Silver was used as a pre-antibiotic cure because it has strong anti-bacterial properties. In fact, most precious metals have medicinal uses, they're just not used as much anymore. With the progress of nano-medicine and multi-resistant bacteria, it seems likely they could have a resurgence.

Post: #25

(08-30-2014 01:13 PM)scorpion Wrote:  The gold would be worth about $75,000 though. Did it appreciate it value? Was it some amazing investment? No. It just didn't lose value. It did exactly what it was supposed to - it stored value over time. Your $1000 worth of gold in 1914 is worth $75,000 today, or put another way, your 2014 dollar is worth 1/75th of a 1914 dollar.

Gold is a very reliable inflation indicator. Not the doctored modern inflation number, but inflation as in expanding fiat money supply.



As you wrote, gold is real money. For a monetary system obsessed with fiat money, I find it quite interesting how the FED now hasn't delivered on the gold that Germany wanted to get back.

http://www.bloomberg.com/news/2014-06-23...bters.html

Quote:Surging mistrust of the euro during Europe’s debt crisis fed a campaign to bring Germany’s entire $141 billion gold reserve home from New York and London. Now, after politics shifted in Chancellor Angela Merkel’s coalition, the government has concluded that stashing half its bullion abroad is prudent after all.

Why would that be a problem if gold was just a meaningless metal? Or maybe the Federal Reserve doesn't have the gold anymore? Maybe it was shipped off to 'private investors' a long time ago, but that is venturing into conspiracy theory.

All I can say is that I wouldn't want to be dependent on a pension in Euro or USD 20-30 years down the line.