Gold - Speculative or Intrinsic in Value?

[rpwi]

An item can have value for two reasons. The first being that it has intrinsic value. The second being that it has resale/speculative value.

Any item that sells above it's intrinsic value, probably has speculative (resale value).

Sure gold has intrinsic value...it can used for speaker wire...dental work...and a myriad of minor industrial uses. But that doesn't explain why it is worth (?) 8 trillion dollars.

In my opinion this means that a good portion of gold's value is speculative value. So people are buying gold not to use...but because they hope somebody else will buy it and those people will buy gold because they hope somebody else will buy it...and so forth.... I do not know what that ratio is. Perhaps at current gold prices, 10% of the price reflects intrinsic value and 90% reflects speculative value.

But I think a fairly strong case can be made that gold is seriously overpriced and those that seek to invest it in are investing in a bubble. Could gold go up? Sure...something that has speculative value can increase in speculative value...but it doesn't have a foundation...and could crash without warning at any given moment. Personally, I am not a fan of gold and invest none of my savings in it.

Not a fan of the Fed nor the dollar either. But the dollar at least will always have some value as the federal government has granted it exclusive access to pay our tax liabilities. That is HUGE. If we were to have no taxes...I'm fairly certain competition from other currencies would cause the dollar to crash as it is the ultimate in speculative instruments.

Thoughts?

 

[enoch150]

There is no such thing as intrinsic value.

Intrinsic: belonging to a thing by its very nature http://dictionary.reference.com/browse/intrinsic
Value: relative worth, merit, or importance http://dictionary.reference.com/browse/value

The definition of value requires at least three things: a thing, another thing to be measured against, and a being to determine the relative importance of the items in question. A thing can not have relative worth, by its very nature.

 

[thoughtomator]

The value of gold as money is based in its chemical properties which make it uniquely suitable for this purpose. With modern technology, platinum is an adequate substitute as well, but for earlier eras where temperatures above 3200 degrees Farenheit could not be achieved by man, it was not so. Platinum is arguably a better metal to use for this purpose today, due to the tungsten/gold problem.

 

[rhelwig]

I would clarify that while there really is no such thing as "intrinsic value", when people use the term what they really mean is "value based on considerations other than the primary topic of discussion".

 

[Travlyr]

Gold is speculative value. The reason it is going up in price against the FRN is because the counterfeiters 'create' FRNs faster than the miners find gold. The Laws of Supply and Demand apply.

Gold climbed to the top of the money chain through the free market because it holds special properties and is more rare than silver in the Earth. All money must be mined, grown, or sewn. Either find it (gold, oil, uranium, etc.) or grow it (livestock, grains, cotton, hemp, etc.) or sew it (take natural resources and make something of value: cars, houses, airplanes, etc.).

Gold holds the most value because it was the most: Desirable, Durable, Divisible, Portable & Scarce element known to mankind throughout history.

 

[hazek]

Gold has value because people value it's inherent properties and out of those properties derived utility.

That's all there is to it.

 

[hazek]

But I think a fairly strong case can be made that gold is seriously overpriced and those that seek to invest it in are investing in a bubble.

You are making a huge mistake by looking at gold and it's value in a vacuum. You have to look at golds value compared to what and how many other goods and services there are and your gold can be exchanged for. If the amount of gold stays equal, the amount of goods and services stays equal but the paper money supply shrinks to 1/3 of current amount, then it doesn't matter that your goal is probably going to "depreciate" since it's still going to likely have the same purchasing power, of course in such a case you could gain a lot by holding paper money and not gold, but you wouldn't lose anything.

Personally, I am not a fan of golf and invest none of my savings in it.

I'm also not a fan of golf, it's too boring for my taste.

 

[The Gold Standard]

Most people buy physical gold and silver to store their value, not to flip it for more Federal Reserve notes in the future. Gold and silver aren't the only options to do that. You could buy platinum, or chickens, or cans of food, or land, or guns. All of those things also store their value. They just aren't as liquid as gold or silver, which is why most people just buy the gold and silver.

This is not speculative. Speculation would be buying and selling gold based on the price in dollars. Certainly many people do that too, but they will mostly do it with paper gold, not the physical metal. It is also why looking at the price of gold and silver in dollars is almost pointless. That price reflects countless paper claims on gold that does not exist. The real value of physical gold may be 5 or 10 times the spot price when we finally have a run on the gold funds and the rug is pulled out from under the people holding paper.

 

[Brian4Liberty]

Value is subjective.

 

[rpwi]

There is no such thing as intrinsic value.

Intrinsic: belonging to a thing by its very nature http://dictionary.reference.com/browse/intrinsic
Value: relative worth, merit, or importance http://dictionary.reference.com/browse/value

The definition of value requires at least three things: a thing, another thing to be measured against, and a being to determine the relative importance of the items in question. A thing can not have relative worth, by its very nature.

In this case, I don't want to be a literalists with definitions... The basic premise of what I'm exposing is gold has a price for one of two reasons. To service industrial utility (indirectly or directly) or to service speculative utility (bought because you believe somebody else will buy it for a high price). Since people are not buying gold in proportion to is industrial value...this is a worrisome sign that gold can and most probably is extremely over-priced and will be vulnerable to catastrophic drops in prices.

 

[rpwi]

The value of gold as money is based in its chemical properties which make it uniquely suitable for this purpose. With modern technology, platinum is an adequate substitute as well, but for earlier eras where temperatures above 3200 degrees Farenheit could not be achieved by man, it was not so. Platinum is arguably a better metal to use for this purpose today, due to the tungsten/gold problem.

Certainly this gives gold scarcity and an economic disincentive to counterfeit (if we consider mining counterfeiting). However...what then determines when gold is over-priced? I mean we could use say...petrified wood as a store of value. If we were to do so, and this became common...what would happen to the price of petrified wood? It would increase dramatically, right? The price difference IMO is speculative value and has to be a dilemma for gold investors to ponder.

 

[rpwi]

Gold is speculative value. The reason it is going up in price against the FRN is because the counterfeiters 'create' FRNs faster than the miners find gold. The Laws of Supply and Demand apply.

I'm not so sure about this...if both the dollar and gold have much of their value over-inflated due to speculation...I can't see an iron clad rule that two over-priced assets will maintain a proportionate ratio with each other as supply changes. If neither were over-valued, that would be different.

I actually suspect cause and effect is somewhat reversed when it comes to gold rising against an increase in the monetary base. Speculators see that the supply of dollars go up and think...well gold buyers will think this means gold will be more valuable...so I'll raise the price. The buyers see the price increase as vindication that gold is a hedge against the dollar...when in my opinion this all could be in reverse and illusory.

Gold climbed to the top of the money chain through the free market because it holds special properties and is more rare than silver in the Earth. All money must be mined, grown, or sewn. Either find it (gold, oil, uranium, etc.) or grow it (livestock, grains, cotton, hemp, etc.) or sew it (take natural resources and make something of value: cars, houses, airplanes, etc.).

Gold holds the most value because it was the most: Desirable, Durable, Divisible, Portable & Scarce element known to mankind throughout history.

In many ways that has been a great feature of gold. It's value to physical volume ratio is very high...which makes it easy to transport and trade. On the flip side...this hasn't been the complete reason it has had historical value. It has been very common in history for governments to tax in gold...when you make legal tax tender in anything (could be silver, bronze, whatever)...you give it a LOT of value. Every years the citizens HAVE to buy the legal tender to satisfy their tax debts. So if they have to get gold anyways...they might as well circulate it around internally.

I do like the idea of truly competing currencies. Perhaps by accepting many forms of tender for taxes. This way if say silver is 20% over-valued and gold is 10% over-valued...the market will shift to using gold and drive the price of silver down.

 

[luctor-et-emergo]

Did you guys know those Alchemists were right after all ?
Gold can be 'made' although it's not very profitable... And far out of reach for your average medieval alchemist...

<link>
https://en.wikipedia.org/wiki/Gold_synthesis#Gold_synthesis_in_an_accelerator

Chrysopoeia, the artificial production of gold is the symbolic goal of alchemists. Alchemists often understood this as a metaphor for a mystical, philosophical, psychological, medical, or religious transformation. Despite this, some alchemists interpreted this literally, and attempted to physically transmute base metals into gold. It is possible in particle accelerators or nuclear reactors, although the production cost is currently many times the market price of gold. Since there is only one stable gold isotope, 197Au, nuclear reactions must create this isotope in order to produce usable gold.
[edit] 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.[citation needed]
[edit] Gold synthesis in a nuclear reactor

Gold was first synthesized from mercury by neutron bombardment in 1941, but the isotopes of gold produced were all radioactive.[3]

Gold can currently be manufactured in a nuclear reactor by irradiation either of platinum or mercury.

Only the mercury isotope 196Hg, which occurs with a frequency of 0.15% in natural mercury, can be converted to gold by neutron capture, and following electron capture-decay into 197Au with slow neutrons. Other mercury isotopes are converted when irradiated with slow neutrons into one another or formed mercury isotopes, which beta decay into thallium.

Using fast neutrons, the mercury isotope 198Hg, which composes 9.97% of natural mercury, can be converted by splitting off a neutron and becoming 197Hg, which then disintegrates to stable gold. This reaction, however, possesses a smaller activation cross-section and is feasible only with un-moderated reactors.

It is also possible to eject several neutrons with very high energy into the other mercury isotopes in order to form 197Hg. However such high-energy neutrons can be produced only by particle accelerators[clarification needed].

Anyways, Gold, coins, especially the worn ones, ages old.... They have this special attraction... I wonder how it would feel to fill a bathtub with gold coins and bathe in them... Pecuniam non olet.

 

[rpwi]

You are making a huge mistake by looking at gold and it's value in a vacuum. You have to look at golds value compared to what and how many other goods and services there are and your gold can be exchanged for. If the amount of gold stays equal, the amount of goods and services stays equal but the paper money supply shrinks to 1/3 of current amount, then it doesn't matter that your goal is probably going to "depreciate" since it's still going to likely have the same purchasing power, of course in such a case you could gain a lot by holding paper money and not gold, but you wouldn't lose anything.

But what if gold is over-priced? Why would it have to maintain the current ratio it does now with the money supply or the size of the economy?

Imagine if for a moment gold had no industrial value. Would gold still have value? True...it is difficult to replicate which gives it 'uniqueness' value. But the only reason I would buy gold then...would be because I hoped somebody else would buy it. That an economic recipe for a ponzi scheme...and all ponzi schemes crash eventually. Now let's change this a bit...say gold instead of having no industrial value...has a minuscule amount of industrial value. Does that significantly change the picture?

I'm also not a fan of golf, it's too boring for my taste.

It is

 

[hazek]

Supply and demand, that's why.

 

[dirtdigger]

In this case, I don't want to be a literalists with definitions... The basic premise of what I'm exposing is gold has a price for one of two reasons.

You are missing the main reason. Gold *is* money despite the attempts of various governments from preventing the use of gold as money. Sure, there is now some speculation on what its value in terms of paper money will be, but that underscores the weakness of paper currency and not the weakness of gold.

 

[Zippyjuan]

Being a very useful metal certainly does not preclude people from speculating as to its value- in fact, I believe that the more useful it is the more it is vulnerable to speculation.

 

[thoughtomator]

Certainly this gives gold scarcity and an economic disincentive to counterfeit (if we consider mining counterfeiting).

Mining isn't counterfeiting - there's nothing fake about freshly-mined gold, it's the same element.

However...what then determines when gold is over-priced?

I don't see how the concept of "over-priced" can even apply to gold as a monetary standard. It will buy what someone will exchange for it. If more gold is mined without a corresponding increase in things to buy, then it will take more gold to buy things. If the opposite, then less gold to buy things. This is called a free market, and it's how things work in the natural world without central planners to fuck everything up for the purpose of diverting as much wealth as possible to themselves.

 

[rpwi]

I don't see how the concept of "over-priced" can even apply to gold as a monetary standard. It will buy what someone will exchange for it. If more gold is mined without a corresponding increase in things to buy, then it will take more gold to buy things. If the opposite, then less gold to buy things. This is called a free market, and it's how things work in the natural world without central planners to fuck everything up for the purpose of diverting as much wealth as possible to themselves.

The supply of gold and the 'supply of the economy' are not the only variables that affect the price of gold. Take petrified wood...it's supply is largely fixed. Certainly as the supply of dollars increases, the ratio of dollars to petrified wood change, making it more scarce. So if an ounce of petrified wood cost 10 dollars an ounce...and the supply of dollars doubles...I don't think it is the worst thing to say that an ounce would then cost 20 dollars.

The question is...why did it cost 10 dollars an ounce to start with?

If it is a speculative price ...this can quickly get out of control... People see a rise in price as evidence that it is an appreciating asset...this encourages more buying...which jacks up the price more...which encourages more buying...and this feeds on itself. People buy...just to sell later at a higher price. For commodities...this is self-correcting...as all ponzi schemes are. Because commodities are largely bought for their intrinsic value...the chickens some home to roost eventually (although speculative bubbles can happen in commodities). If there is speculative run on potatoes...potatoes become more scare due to the high prices to the marketplace...and people consume other things. This causes the market to crash and self-correct. With gold, people are using it as a store-of-value...which means it doesn't have its natural brake against speculative run-ups...and is highly susceptible to being over-priced and eventually crashing.

 

[thoughtomator]

Petrified wood is impractical as currency because it does not divide equally or easily. Also its supply isn't fixed at all, it can be manufactured: http://www.eurekalert.org/pub_releases/2005-01/dnnl-wtp012405.php

The question is...why did it cost 10 dollars an ounce to start with?

The dollar used to be convertible for a fixed amount of gold or silver, having once been a non-fiat currency. It really doesn't need to be any more complicated than that, nor is it beneficial to the honest man to make it more complicated than that.