Why is gold valuable? Please educate me

financegeniuz wrote:

That is the uneduated man's answer.

what if i found a rock with a special shape and defined it as valuable because it was so rare. then what?

Then the supply would be low, and your demand for it would be high. So you would be willing to pay a lot of money for it. But other people might not be. If you could convince them that they really wanted it, then the demand would be high genreally, and you'd be able to sell it.

fashion. there was tulip mania in netherlands and I think orchid mania in china now but gold is always good for making jewellry and it stays in fashion but in india silver is more prefered.

Yes, this is indeed the essence of the question. You can't eat gold, wear it, or use it for shelter. If you were starving and all you had was gold, you would be out of luck. But somehow we have collectively decided that gold is desirable, probably due to its beauty and rarity.

Some have mentioned that gold has some practical uses, but others have correctly noted that its value far exceeds its usefulness. I don't believe its value comes from our using it as jewelry; I believe it's the other way around.

I guess the same is true of diamonds and other precious stones. They have some uses in industry, but it is usually the lower grade diamonds that are used for those puposes.

I guess it's possible for everyone to suddenly decide that gold has no value, and then it would not have any. Historically, that has never happened.

be specific here people. gold has a high exchange value. We fetishize it. There are other ways of determining value. For example, the cost needed to produce an object. Then there is utility value. Some things even have inherent worth. Humans have immeasurable worth, at least according to some you Kant measure it, even though there is an exchange value.

I prefer to spend my money on lead

What gives a dollar any value? You can't eat a dollar either and they can print up as many as they want at any time and stamp a big fat number on it. Why does a dollar have value? It's just paper/cotton or digital numbers on a computer somewhere.

I would rather own gold than dollars because I know it can never be diluted and debased:

http://en.wikipedia.org/wiki/File:GermanyHyperChart.jpg

http://en.wikipedia.org/wiki/File:Inflaci%C3%B3_utan_1946.jpg

The answer I believe is both due to it's a.) historical value and b.) to protect investors as a hedge.

a.) Obviously, supply and demand is the correct as someone noted earlier as it is a rare metal, but gold has always been had high value for thousands of years as it kept it's value throughout the ages mainly due to it's use in jewelry and coins. But in modern times as governments shifted to using fiat money (paper money), governments need to "peg" their currency toward something in order to give it acutal value, and gold was chosen, thus creating the "gold standard." After WWII, however, monetary policy shifted world wide to the "Bretton Woods" system, where the US dollar became the "peg" and took gold's place, but in order to back it the dollar's value, the US pegged an ounce of gold to $35. This system ultimatley failed and resulted in the floating currreny market we have now, but gold nonetheless has kept it's value through it's use as sort of universal monetary unit.

b.) Recently gold has become more valuable due to it's use as an investment hedge. The last ten years, we have gone through the dot com bubble, 9/11, two wars, the real estate bubble, the ensuing collapse of many financial institutions, and two recessions. How does this affect gold's value? Economic uncertantiy, which mean investors pull their money out of stocks and riskier investments and put it into safer assets, like treasuries, bonds, etc. But with the fluctuating value of the dollar and the fear of hyper inflation due to the US's huge budget deficit, investing in gold has gone up as a way to hedge against the declining value of the dollar.

The main reason is that the total amount of gold in the world is relatively rigid compared to other things. Mining supply is slow and gold is rarely destroyed.

He's trolled you pretty good here.

I've been trolled? Ouch.

"If a one trillion ton reserve of gold was discovered tomorrow, would gold have the same value?"

In America, we print one trillion dollar bills and the value of the dollar bill tends to stay the same.

Senior Software Engineer wrote:

I would rather own gold than dollars because I know it can never be diluted and debased:

You can have inflation in gold too. Buy at the top of the bubble and you'll get your a** handed to you.

It took 25 years for gold to get back to where it was in the early 80's. Adjust that for dollar inflation and it's still not there. You better know what you're doing when you trade in gold.

alan green spandex wrote:

"If a one trillion ton reserve of gold was discovered tomorrow, would gold have the same value?"

In America, we print one trillion dollar bills and the value of the dollar bill tends to stay the same.

Congratulations, you're a moron.

"You better know what you're doing when you trade in gold"

Sure, if you buy at the absolute peak of anything, then you will have some troubles. I can pull up a stock chart with some nasty 20 year periods. One with a 90% loss in it. Why do people think the stock market is risk free? Gold is far safer. There is no counter party risk.

Why is gold valuable?

Because Obama can't print gold like he prints money.

gold comes out of my ass as farts.

"Sure, if you buy at the absolute peak of anything, then you will have some troubles. I can pull up a stock chart with some nasty 20 year periods. One with a 90% loss in it."

How do you know where the top is? How do you know we're not at one now? Besides, who said anything about stocks? You said you'd rather be in gold than cash. You can put that cash in a money market and earn interest. If you own gold you don't make any money unless it goes up. If it goes down you LOSE money.

"Gold is far safer. There is no counter party risk."

Gold is one of the most volatile assets there is. In the 37 year chart I linked to gold fell 50% or more twice and by more then 30% three more times. How is that safe? If you want safe, put your money in TIPS. They always earn more than inflation (something gold doesn't do), and the only risk is that the US government will collapse. If that happens, your investments will probably be the least of your worries.

Money market? TIPS? Those are laughable investments. The government lies about inflation, so you are not breaking even with TIPS. Then the IRS gets their cut from the interest you earn. You have no chance with TIPS. The interest rates on money market is even a worse.

Who said knowing about where the top is? You have to be a complete moron to buy at the top of anything. Buy the dips, average in etc. You don't have to be a complete fool when purchasing stuff.

I sold my California house in 2007 that I bought in 1997 since I knew it was at stupid levels. I bought gold to ensure the government and the indebted voters don't steal the purchasing power away from me. Oil looked very good at $35 a barrel last year, so I moved a lot money into that. Bottom line is that I have blown away anything TIPS or bonds could ever do. I would have to earn interest for 100 years on bonds to cover what I have made.

The truth of the matter is that I don't give a crap what my investments do when I own real assets like gold. I only care if I can increase my purchasing power. TIPS, bonds and most stocks are guaranteed losers when measured against inflation. Sure I will roll my investments around into other asset classes such as property, commodities, precious metals when one looks more favorable to the other, but I will never roll into the dollar. Bottom line, the dollar is a guaranteed loser. Stick a fork into the dollar because its done.

the value of the dollar if measured by the dollar will always be $1 per dollar.