Why is gold valuable?

[kirbywelch92]

I mean really, why is it so hailed? Skill sets are useful; commodities that improve life imply value.

So far I can only come up with one legitimate reason:
It's shiny.

[Birch Boy]

If you de-construct anything down to money you'll see how truly unimportant it really is. If you have gold you can trade it for magical green paper which can than transform itself into any thing from bread to an automobile. You hand someone a stack of green paper with an important man's face on them and they give you clothes. Then they do the same thing you did. It's really pointless except for the fact that it's an organized system that's only reason to be in existence is that people are greedy and want things in return for their things.

[The Texas Pirate!]

Its a great conductor of electricity.
and its shiny 

[ack44]

People trust in gold as a stabilizer of wealth because it's been valued in every civilization through history.

Gold has several qualities that have made it exceptionally valuable throughout history. It is attractive in colour and brightness, durable to the point of virtual indestructibility, highly malleable, and usually found in nature in a comparatively pure form.

[Riceball]

People trust in gold as a stabilizer of wealth because it's been valued in every civilization through history.

It was likely valued so highly initially because it was hard, shiny and there wasn't much of it. From there, see above.

Its kind of like a reserve currency, it doesn't hold any real value in terms of being directly useful for something (like a skill) - although it does have uses - its just an accepted store of value. Like the US dollar, except its actually worth something 

[XJDenton]

It doesn't degrade, therefore if the worst happens and civilization collapses owners will be guaranteed at least one item that is shiny.

[kári]

Something I don't quite understand either - but then I don't understand anything about the economy.. it just baffles me.

[Chino]

It doesn't corrode, and it stays shiny for ever. Not to mention it is rare, which automatically makes is desirable.

[PlaysLikeMyung]

People trust in gold as a stabilizer of wealth because it's been valued in every civilization through history.

Gold has several qualities that have made it exceptionally valuable throughout history. It is attractive in colour and brightness, durable to the point of virtual indestructibility, highly malleable, and usually found in nature in a comparatively pure form.

yep. gold will always be there and so it's something to fall back on should paper money fail

[ddtonfire]

It's rare, stable, and has many uses. Aluminum used to be the same way (the Washington monument was capped with the highly rare and highly valuable aluminum) until the development of the Hall-Héroult process.

[AcidLameLTE]

People trust in gold as a stabilizer of wealth because it's been valued in every civilization through history.

It was likely valued so highly initially because it was hard, shiny and there wasn't much of it. From there, see above.

Ummm, as far as I'm aware, gold is quite a soft metal.

[Progmetty]

Women.

[Riceball]

It is, but I dare say in whatever BC, it seemed a lot harder than a cow, wheat or water...

[ack44]

The price of gold will go even higher if we reach the peak of production for gold. I can't say if that will happen soon or not, but here's some charts. Gold prices are still rising but production is not, as far as I know.





And everyone should know that China is buying loads of gold. They must think it's something better to buy than more U.S. debt 

[emindead]

And don't forget India; and that that last chart doesn't include post Melt-down prices (it broke the $1K barrier).

[Riceball]

Gold is trading around US$1,400 right now, investors are in gold (and other commodities) right now because they don't want currency-based assets (ie US dollars mainly). Its pushed the price up to record levels, and I'm expecting it to ease gradually as the US begins to improve - very slowly mind you.

China are also buying a staaaack of Euro debt at the moment; China are the masters of circular finance (don't know if thats a name). They know that by buying a nations debt and pumping money into their economy, they keep the consumption train rolling which means more exports for China. Thats what they did to the US, blatantly, and what they will probably do with Euro debt (they're getting some pretty good yields on Euro debt too!) albeit to a lesser extent.

[ack44]

Its pushed the price up to record levels, and I'm expecting it to ease gradually as the US begins to improve - very slowly mind you.

That's interesting. The two views that I always hear are that gold will keep going up until the $-based system totally crashes, or that gold is in a bubble and will crash suddenly like earlier in that chart.

[rumborak]

Historically, it was valuable mostly out of agreement and the difficulty of extraction.
These days it's just supply and demand. The belief in its supposed stability is IMHO misunderstood history. 

rumborak

[Riceball]

Its pushed the price up to record levels, and I'm expecting it to ease gradually as the US begins to improve - very slowly mind you.

That's interesting. The two views that I always hear are that gold will keep going up until the $-based system totally crashes, or that gold is in a bubble and will crash suddenly like earlier in that chart.

The dollar based system won't crash, and gold is not a bubble.

It's far too difficult to explain the global currency system in any reasonable level of detail to do its importance justice, but the "gold is a bubble" thing is insane. Prices have been driven up, like Rumborak said, by supply and demand. Global supplies are fairly consistent, while demand has sky-rocketed in recent times because general investors, hedge funds, investment banks and countries are getting out of currency based assets and into gold. The reason for this is that currency-based assets are delivering very poor returns due to the after-effects of the GFC in the North Atlantic (zero prices growth, spare capacity in housing markets, weak consumer sentiment, to name a few), and they can get better returns buying companies who trade in commodities, or better yet, buy the commodities themselves.

Its all cyclical, and it will, slowly, normalise as the US (in particular) improves. So, no, there is no bubble, not a serious one anyway, its just where the cycle is at.

[emindead]

Its pushed the price up to record levels, and I'm expecting it to ease gradually as the US begins to improve - very slowly mind you.

That's interesting. The two views that I always hear are that gold will keep going up until the $-based system totally crashes, or that gold is in a bubble and will crash suddenly like earlier in that chart.

From your posts that I've seen since I've been on DTF, you seem to listen to the terrorist-equivilant economists/commentators. The dollar based system won't crash, and gold is not a bubble.

Please don't carry with these kind of comments that don't add anything to the discussion but only insult.

Historically, it was valuable mostly out of agreement and the difficulty of extraction.
These days it's just supply and demand.

rumborak

They have always been supply and demand, too.

[rumborak]

No, not really. Back in the original days governments were completely in the business of issuing gold coins, and thus the value of gold was half-determined by those governments, half-determined by supply and demands. That's indeed one of the benefits of disassociating a currency from a physical medium, because you don't have this inadvertent entanglement that you don't have control over.

rumborak

[Riceball]

Fixed. Was a bit too far, sorry!

[Progmetty]

@ terrorist-equivilant economists/commentators
Seriously dude how many bumper stickers do you have on your truck? you can tell me

[Riceball]

@ terrorist-equivilant economists/commentators
Seriously dude how many bumper stickers do you have on your truck? you can tell me

Not as many as that stupid comment would lead you to believe lol...

I'm an economist so when I hear people making comments like the world is going to end, I get a bit heated. Gotta make sure I actually read my posts back to myself before I post them, make sure I don't sound like a whacko.

[TheVoxyn]

@ terrorist-equivilant economists/commentators
Seriously dude how many bumper stickers do you have on your truck? you can tell me

Not as many as that stupid comment would lead you to believe lol...

I'm an economist so when I hear people making comments like the world is going to end, I get a bit heated. Gotta make sure I actually read my posts back to myself before I post them, make sure I don't sound like a whacko.

Economist-five o/

[Progmetty]

Yeah I wish I can do that myself, btw I was taking a shower when you edited your post so I didn't know you took it back when I replied, sorry

[Riceball]

Tis alright mate, probably deserved a bit of stick for that comment.

Economist-five \o
Should have gone for an economist-ten, the marginal benefit exceeds the marginal cost

[ack44]

I'm an economist so when I hear people making comments like the world is going to end, I get a bit heated.

But wouldn't you agree that economists in general are usually over-optimistic about things, and tend to act clueless ("Nobody could have predicted it"!) when big meltdowns happen?

Also, how do you reckon America will "improve"?

[Riceball]

I'm an economist so when I hear people making comments like the world is going to end, I get a bit heated.

But wouldn't you agree that economists in general are usually over-optimistic about things, and tend to act clueless ("Nobody could have predicted it"!) when big meltdowns happen?

Also, how do you reckon America will "improve"?

I won't disagree with that statement, economists do have a tendency to be over confident in both their positive and negative statements/forecasts/predictions/guesses...

For the US: The US housing market won't improve for a very very very long time, far too much spare capacity and its too easy for mortgage holders to just walk away with no consequence if they default on their mortgage. That's what seems to be holding a massive recovery back, as conditions in the US aren't too disimilar to other developed nations who were sucked into the quagmire.

Asset prices are beginning to rise, although the pace is a bit disconcerting. Jobs growth is picking up, but a number of people have dropped completely out of the labour force (participation rate is something like 55 per cent, which is ridiculously low for a developed economy). Exports are rising, mainly due to the dollar being fairly weak, while imports, particularly of capital machinery and business-related equipment, are beginning to turnaround. Consumption of services, which was the key driver of growth prior to the GFC, looks to have bottomed out, and durable goods consumption has been impressive over the past 9 months.

Sorry if that got a bit jargony lol.

So, yeah. Things aren't great, but they are on the way back up. The housing market is really the only significantly negative thing in the US economy at the moment. I suppose the other key point to note is that this is all happening with very low inflation at present, so once that picks up things *should* get going.

[eric42434224]

Why would you say there are no consequenses for walking away from a mortgage?  There are plenty of negative consequenses.  Having horrible credit, and being sued by the bank for the remaining balance seem pretty negative to me.

[TheVoxyn]

Tis alright mate, probably deserved a bit of stick for that comment.

Economist-five \o
Should have gone for an economist-ten, the marginal benefit exceeds the marginal cost

My expected utility is lower though, because it has an increased chance of hurting myself.

[Riceball]

Why would you say there are no consequenses for walking away from a mortgage?  There are plenty of negative consequenses.  Having horrible credit, and being sued by the bank for the remaining balance seem pretty negative to me.

Consequences wasn't the best word; from what I've heard its much easier to walk away from a mortgage in the US than it is in Australia. No doubt, you would have a horrible credit rating, and I wasn't aware the bank could sue hmmmm interesting. But still, negative equity is the main problem with the US market - houses were bought with borrowed money and now the house is worth less than the money that was borrowed (not that I'm sure I needed to explain that to anyone who posts in this board).

[eric42434224]

Why would you say there are no consequenses for walking away from a mortgage?  There are plenty of negative consequenses.  Having horrible credit, and being sued by the bank for the remaining balance seem pretty negative to me.

Consequences wasn't the best word; from what I've heard its much easier to walk away from a mortgage in the US than it is in Australia. No doubt, you would have a horrible credit rating, and I wasn't aware the bank could sue hmmmm interesting. But still, negative equity is the main problem with the US market - houses were bought with borrowed money and now the house is worth less than the money that was borrowed (not that I'm sure I needed to explain that to anyone who posts in this board).

Yes, you can walk away, but the bank reserves the right to sue you for the remaining loan balance after the house is sold.

[Riceball]

Yes, you can walk away, but the bank reserves the right to sue you for the remaining loan balance after the house is sold.

Right. So I guess the subprime crisis created a critical mass in housing defaults, and banks have been overwhelmed by all of the potential ligitation. As such, they can't follow through with all of the legal action - and they'd have very little chance of clawing the difference back anyway.

[eric42434224]

Yes, you can walk away, but the bank reserves the right to sue you for the remaining loan balance after the house is sold.

Right. So I guess the subprime crisis created a critical mass in housing defaults, and banks have been overwhelmed by all of the potential ligitation. As such, they can't follow through with all of the legal action - and they'd have very little chance of clawing the difference back anyway.

Little chance now....but the judgement follows you.  They may not get blood from a stone now...but they can get if further down the line when the borrower gets healthier financially.  Walking away should only be used as a last resort.  Too many are walking away just because they are upside down...not because they cant afford the home.