Why is gold valuable? Please educate me

I just went back and read the original poster's questions and comments. Maybe he really is just wondering why a bar of gold is worth more than a bar of steel. Oh, well.

The question about the choice of gold as a basis for a monetary system is interesting, however.

Gold has been used to make fine quality and valuable jewelry beginning in ancient times. Gold is also used in dentistry and electronics. Gold can not be manufactured like a bar of steel. Gold has a beauty and also a malleability at the right temperature. There is a limited supply and new discoveries are rare. I worked underground in the Hollinger Gold Mine, Timmins, Ontario during the summer of 1966. Hollinger went down close to a mile and, at one time, had over 1000 employees. The mine was opened in 1910 and for a while it was the biggest gold mine in the Western Hemisphere. The main mine closed in 1968 because production was no longer profitable. I believe that many of the other gold mines in the Timmins area have also closed. I imagine prospectors are still searching for gold in the Timmins area and elsewhere but as said before the supply on earth is very limited. Still there is a demand.

The definition of money (aka specie) is that it is:

1. Universally accepted

2. Uniform

3. Transportable

diamonds lack #2 - they are not uniform

property lacks #3 & #2 - it is not transportable or uniform.

gold meets these criteria. Its "value" is still quoted in terms of another form of specie - the US Peso (also of questionable value).

Silver, salt, cowrie shells - these have all been forms of specie. There have often been multiple forms of specie being used along side one another.

The only "value" of gold is its acceptance. People could just as easily balk at accepting gold as payment ("Gold causes cancer"), and the price would fall to near zero.

Perhaps too philosophical, but I remember reading this somewhere about 30 years ago! Aldous Huxley wrote something called "What are precious stones precious?" Quick Google excerpt below:

Confirmation of Huxley's intentional use of color is summarized in his "Natural History of Visions," a 1959 lecture posing the question, "Why are precious stones precious?" (Human 216). These brightly colored pebbles, says Huxley, are not beautifully harmonized like a work of art or a piece of music; they are single objects which the human mind responds to in an unaccountable way. He states that one reason for our interest can be found in the Phaedo where Socrates speaks about the ideal world of which our world is in a sense a rather bad copy. Socrates says: "In this other earth the colors are much purer and more brilliant than they are down here. The mountains and stones have a richer gloss, a livelier transparency and intensity of hue". Plato writes not merely about a metaphysical idea but also about another inner world which has landscape and beautiful regions of memory, fantasy, imagination, dreams, and-most remote -- "the world of visions" (218). Huxley explains the importance of light and color in this world of visions:

This experience of the pure light of the void is a visionary

experience of what may be called the highest, the most mysticalkind. On a rather lower level the lights seem to be broken up and become, so to speak, incorporated in different objects and persons and figures. It is as though this tremendous white light were somehow refracted through a prism and broken up into different coloured lights. In this lower form of vision we have theintensification of light in some way associated with the story-telling faculty, so that there are visions of great complexity and elaboration in which light plays a tremendous part, but it is not the pure white light of the great theophanies.

Huxley deduces, therefore, that precious stones are precious because they are objects in the external world -- along with fire, stained glass, fireworks, pageantry, theatrical spectacle, Christmas-tree lights, rainbows, and sunlight -- which most nearly resemble the things that people see in the visionary world (232-35). Poets and storytellers, by giving us a mystic vision of these objects with gemlike qualities, bring us into contact with the visionary world and potentially stimulate our own visions within us.

Wow, I haven't done a history class in 15 years and I recall these terms:

http://en.wikipedia.org/wiki/Gold_standard

http://en.wikipedia.org/wiki/Mercantilism

Either I totally missed the point of the question...or everyone else did. Not too long ago, national economies were gauged by their precious metal stores. It has since changed, but, the vestiges of this system are still around, i.e., "coins". In reality, coins are only valuable for commerce. I can think of nothing useful for gold, silver, nickel, etc. other than their ascribed value in finance.

Senior Software Engineer wrote:

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.

According to you, you have to be a moron to buy at the top. So I'll ask again, how do you know where the top is? Gold is at an all-time high, wouldn't that make this a bad time to be buying gold (as you advocate)?

Average in. What's the problem?

I have been buying up and down $600 - $1000. Looks like next purchase will be around $1050 though I like silver better right here.

Did I buy at the top?

Averaging in as the price rises is averaging up. Assuming you put in roughly equal amounts between $600 and $1,000, you have a loss if the price falls below $800. Did you buy at the top? I don't know, I'm not the one claiming to know where the top is.

It doesn't really matter what function it serves. People want it in great quantity and it is difficult to mine, so the supply is limited. Therefore the price is high. Gold has been in high demand for many thousands of years and in times of crisis it is viewed as a safe investment which has real intrinsic value (and the reason the US gov't used to have to maintain gold reserves to cover the money they printed. By the way, this is no longer the case and your money is backed by forward tax revenues that US taxpayers pay into the gov't cofers.). Why is gold popular? It is shiny for one. On the other hand, the price for a particular asset does not depend on the usefulness or functionality of the asset. If many millions determine that peanut butter has more value than the US dollar, it too could be a currency.

because humans like shiny things. gold, jewels, silver are rare when compared to most everything else which is rock and dirt.

im sure ancient man was just about the shinyness and rare when it's compared to his rocky brown world.

"Did you buy at the top? I don't know, I'm not the one claiming to know where the top is."

Lets say my average price is $800. Is that the top? Well obviously not since $1065 is the top right now. What will the top be 5 years from now? Well somewhere between $1065 and infinity. So I definitely did not buy the top and I definitely don't know where the top is and I definitely don't care. The fundamentals for gold going forward for at least the next 10 years is very very good. If you can't see why that is, then that's too bad for you.

Gotcha. Good luck!

financegeniuz wrote:

Why is a bar of gold worth more than a bar of steel?

Its rare:

Annual production of steel 700,000,000 tonnes +

Annual production gold approx 5,000 tonnes

(global figs)

Historically used as currency, and its a nice colour

I've often wondered the same thing. What is behind the high demand for precious metals and stones, and why are similar substitutes are worthless.

If it's just the color, why isn't iron pyrite nearly as valuable as gold?

Diamonds sparkle, but why is cubic zirconium so much cheaper.

I've seen gravel and glass gleam in the sun, but why are they less attractive than rubies or emeralds?

Frankly, I think buying precious metals and stones, as jewelry is a waste of good money, better spent on a Wii - but please don't tell my wife.

I can see the value of linking currency to limited metal supplies, such as silver and gold. This prevents "cheating" your way to wealth, as no alchemist has yet discovered how to turn lead into gold. Historically, metal coins were real money. Paper money was just a promise to replace it with real coins, whenever you wanted. But this link of paper backed by gold was broken long ago, and is merely backed by a promise that the economy will remain stable.

Gold as a tradeable commodity, means that part of the value is speculative, and this makes the value much more volatile.

And finally, besides rings and bracelets, can you even own gold anymore? I thought this was no longer possible, in the US anyway.

Sorry, no answers, just a bunch of questions.

this has all been covered

In the list of things I love, seeing morons like you blow up is always going to rank very very high.

How can I blow up?

No credit card debt. No mortgage. No car loans. No school loans. I have no financial leverage against me and I increase my holdings every month in asset classes virtually untouchable by the indebted masses and government.

Blowing up is for financial morons. Unfortunately, that's 90% of this country.

Gold is no different than fiat money. It is primarily valuable because other people agree on it.

Except gold has stood the test of time for 5000 years and all fiat currencies eventually fail. I think I will take my chances and be on the correct side of historical precedence.