PMs: Irrational fear of PMs

[SevenEyedJeff]

I understand WHY fiat currency is bad. I understand that people will not want fiat dollars when the SHTF. I'm simply asking - where is the intrinsic value of gold outside of jewelry? Most of the time, people see gold as valuable only because it looks pretty. When the SHTF, why would someone want gold? It's practically useless.

I am simply saying that, for the long term, I believe silver to be a much better store of value.

You may be right regarding silver. The problem is, if the price gets very high, industry will look for alternatives to silver. It could bring about a big spike then a crash. All we're saying is that gold is more stable. It don't go up real fast and it don't go down real fast.

I know you're asking about the intrinsic value of gold outside of jewelry, and there really isn't any. Gold is just money, period. History has proven that much, at least to this point in time. Ironically, its "uselessness" is also the reason the price is so stable.

 

[smokemonsc]

money

Kah, Gold's intrinsic value comes from how its specific characteristics makes it ideal as a medium of exchange.

For a medium of exchange to survive the test of time as gold has it must have the following characteristics.

1) Malleable: It must be easy to form in to a useful shape and size
2) Easily divisible: It must be easy to cut/divide in to smaller pieces
3) Sturdy: It must be able to withstand ware and tear
4) Stable Supply: It's supply must stay as close to constant as possible so people know how much it is worth
5) Easily recognizable: It's identify must be easy to recognize
6) Lightweight: It must be easy to move around

Gold fits all of these important characteristics and more. Paper money fits some of these and not others, which is why Gold is a preferable medium of exchange. For example: Paper is not study: It can burn, gets destroyed in water, will erode over time, gold does not. Paper can be printed and its supply near limitless, gold is limited to how much can be dug out of the ground and is an overall very rare substance.

Most common objections to gold are based on bad economics and false assumptions, such as it being outdated, or "not enough to go around" and other such nonsense. But I think my above snippet gives a good case on where gold's intrinsic value comes from.

Like food and all other commodities; it's intrinsic value comes from the characteristics that enable it to serve a purpose and fill a demand.

 

[smokemonsc]

Silver makes a great partner to gold because it is more common (thus allowing it to assume a lesser value and be used...more commonly ) however it does deteriorate just by the air and will rust in water. Silver does get used up by commercial use whereas gold does not. I like both, and I agree with Kah's appraisal of silver outperforming gold again next year. I own both though so we'll see

 

[kah13176]

Thank you for the responses everyone. I'm relatively new to the Austrian perspective, and I'm trying to learn as much as I can, in this case playing devil's advocate.

 

[Corydoras]

Here's a very good little news article where a professor explains why gold hits the particular sweet spot on the periodic table of elements.

http://www.npr.org/blogs/money/2010...-why-gold-beat-out-lithium-osmium-einsteinium

 

[Corydoras]

So the chemistry professor in my previous post explained RATIONAL reasons why gold makes a superior medium of exchange compared to the rest of the elements.

Here is a traditional/irrational reason why gold will always have some value: Because it has particular uses in Islamic law, for almsgiving, dowry, and fines. Gold and silver are built right into Shariah. As long as there are Muslims, gold will have a value.
http://en.wikipedia.org/wiki/Islamic_gold_dinar
http://zakatpages.com/

 

[PeacePlan]

There is no way that gold's price is going up entirely in response to the dollar. In 1970, gold was $30 an ounce. Now, it's $1400 an ounce. The money supply has not grown 40+ fold in 40 years. IcymudPuppy has it right. Gold is, by and large, worthless if you really think about it. 95% of gold is valuable "because it's pretty" and the remaining 5% for electrical connections. When the shit hits the fan, no one will want gold. If you're going to invest, invest in silver when it's low as a store of value. IcymudPuppy is right - silver is worth like 30/oz. But whose to say it won't be 15/oz or 45/oz next year? You aren't sure because the prices are based on speculation and confidence. But yes, silver can be used as a store of value since it's used in a large variety of applications, and thus will never be worth nothing. On the other hand, gold's value will plummet to near zero when people realize that it being sparkly will not help them survive whenever the global fiat system crashes.

We issue debt not money the dollar is a IOU and nothing more. We have been through many fiat collapses and they all collapse at the end. Gold and Silver have been used as money for over 5000 years. It is a natural money as it can be made in all sizes and weights. Money is something that groups of people need to trade with. Something they can agree to use to store wealth so they can trade with others. Bartering has been used but it does not work very well in a lot of circumstances. Say you have some chickens and I have pigs and you want one of my pigs and want to give me chickens for pigs - I don't want any chickens but would like to get some firewood from the guy that has firewood. We agree to use gold/silver and I sell you a pig for some silver and use that to buy my firewood.

Money supply has increased way over 40 times IMO May be more like 200 times. The treasury does not create the money their job is to make sure that there are enough paper IOU dollars in circulation so when you go to a store the paper is there to give you change. Most dollars are not what you think dollars are but just digits entered into a bank account. I can't tell you how many digits that represent dollars there are but I am sure there are a lot more entered into bank accounts, stock funds, IRA's treasuries etc. They all represent dollars - what if everyone went to cash in their accounts for dollars? Most of the money is created by banks as digits in a loan ledger - when you buy a house the bank does not go into the vault and pull a bunch of money it has stored - it creates the digits for transfer to the sellers bank. Magicians pull rabbits out of a empty hat and bankers pull out dollars/digits from their hat.

National debt in 1970 was 382 billion

We are in a dollar bubble not a gold bubble.......... Too many dollars exist in relation to gold and silver and that relationship is being worked out..

Thats the way I see it, could be wrong and time will tell.

 

[Icymudpuppy]

Gold and Silver have been used as money for over 5000 years. It is a natural money as it can be made in all sizes and weights. Money is something that groups of people need to trade with. Something they can agree to use to store wealth so they can trade with others. Bartering has been used but it does not work very well in a lot of circumstances. Say you have some chickens and I have pigs and you want one of my pigs and want to give me chickens for pigs - I don't want any chickens but would like to get some firewood from the guy that has firewood. We agree to use gold/silver and I sell you a pig for some silver and use that to buy my firewood.

While this explains how gold and silver can be used as currency, the fact is that in today's world, nobody actually IS using Gold and Silver as currency. Stocking up on it means that until it becomes an accepted and usable currency, you may be stuck with a bunch of useless metal that you can't use to buy a loaf of bread. After a dollar collapse, If it takes longer than 3 weeks for a majority of the sellers in your community to make the switch to a gold/silver system from a default barter system, you could starve to death with a pile of gold. Indeed, there are many folk tales of exactly this happening in economic crises. Given that the majority of gold is held by a small minority of banks, and that a gold certificate won't be worth the paper its printed on when that bank goes bust in the collapse, it will take a very long time indeed for those hoards to be distributed enough to make for a stable monetary base. Meaning that it could be years to establish a reliable gold/silver economy. If you are anticipating an economic collapse in the near future like many of us, it is better to stock up on assets that are as liquid as possible. Things that everybody will need, and you can trade away in exchange for the things you need. Gold isn't really NEEDED by anyone.

If you are going to invest in PMs, you should only invest in bullion and coins never certificates. Real coinage in the hands of individuals will help speed the conversion to a G/S economy after a crises. I have enough silver and gold to cover 1 month of living expenses for my family at current exchange rates if that is all I had to live on. Obviously, in a real collapse, I would not use that even until the G/S economy stabilizes. I would first trade skills, commodities, etc just like I am now. In my part of the world, farmers didn't starve or freeze during the depression. They couldn't buy luxuries as there weren't any luxuries to be had, but there was no problem with food, heat, etc.

 

[pmbug]

While this explains how gold and silver can be used as currency, the fact is that in today's world, nobody actually IS using Gold and Silver as currency. ...

Humans are so short sighted. We've only been completely divested from gold and silver being our money for a short 40 years or so. I guess for everyone born in the late 60's or later, it's all they have known. Such hubris to think they know better than the sands of time.