Why on earth would anyone buy gold. What can you do with it and just Why really?

Max_Headroom_3

!!!!!!? wrote: »

Basically, Gold has been used as a medium of currency in almost all the major civilisations for thousands of years.

It has a number of properties which make it suitable as a store of wealth:

* There's only a limited amount in the world and new gold is being mined at a relatively low rate, so it's not 'inflating' away and is relatively rare.
* It's inert - doesn't tarnish or corrode. Great for longer term storage. You can even chuck it into a hole in your garden - try that with paper notes.
* Because of the rarity it means you can store a lot of wealth in a very compact form. This is where silver falls down, another precious metal. A small brick of gold would be worth as much as a suitcase full of paper notes.
* There aren't many practical uses (main one would be jewelry) so it's not like the available gold is being consumed. Even when it's used for something like jewelry it's almost 100% retrievable to ingot.
* It's physically attractive and pleasing to the eye.
* Because of the long history of gold, it's universally accepted as being precious.

That's why gold has value.

So basically gold has value because it has value. And because it's "pretty".

So its value is purely based on sentiment really. What other people think/are prepared to pay defines what is its worth, there is no usefulness or income ratio to it.

Sounds a lot like the house price bubble to me, values based on no more than opinion rather than actual usefulness/cost ratio, right up until the point where people realise the emporer has no clothes.

ameratsu

Perhaps we should reintroduce salt as a currency?:rolleyes:
Is it true that salt was more valuable then gold at some point - presumably due to food preservation and long sea voyages?

Max_Headroom_3

amcluesent wrote: »

>I mean it's not like you can eat it or cook with it or do anything with it. Why??????<

LOL. Another MSEer on the ignore list...

Why on the ignore list? It's a totally fair question.

mewbie_2

ameratsu wrote: »

Perhaps we should reintroduce salt as a currency?:rolleyes:
Is it true that salt was more valuable then gold at some point - presumably due to food preservation and long sea voyages?

Good thinking. <smug> We'd be quids in.

neverdespairgirl

ameratsu wrote: »

Perhaps we should reintroduce salt as a currency?:rolleyes:
Is it true that salt was more valuable then gold at some point - presumably due to food preservation and long sea voyages?

I doubt it was more valuable weight-for-weight, but it was an important item. The word salary derives from the salt paid to Roman soldiers, I think.

WTF?_2

Max_Headroom wrote: »

So basically gold has value because it has value. And because it's "pretty".

So its value is purely based on sentiment really. What other people think/are prepared to pay defines what is its worth, there is no usefulness or income ratio to it.

Sounds a lot like the house price bubble to me, values based on no more than opinion rather than actual usefulness/cost ratio, right up until the point where people realise the emporer has no clothes.

It has value because it is a very good way to represent wealth, for the reasons outlined.

We need some form of currency or else we'd be spending all our time growing food and bartering the excess for goods. That's why civilisations thousands of years ago had developed monetary systems. (It was only in 1971 that the final link between the dollar and gold was broken.)

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

Max_Headroom_3

!!!!!!? wrote: »

That's why civilisations thousands of years ago had developed monetary systems. (It was only in 1971 that the final link between the dollar and gold was broken.)

It just strikes me that it's a very historical link, no longer really based on anything tangible.

WTF?_2

Max_Headroom wrote: »

It just strikes me that it's a very historical link, no longer really based on anything tangible.

It's a lot more tangible than money in a bank account which can and will disappear should the bank go bust.

Some paper notes and coins have more value than 'cash' in a bank account but only because the government makes them have value by law.

http://en.wikipedia.org/wiki/Legal_tender#In_the_United_Kingdom

So long as you have legal tender you can pay taxes with it and use it to settle debts. But the money in your bank account does not constitute legal tender - though in practice the bank will provide you actual legal tender exchanged from your bank account.

Also, just about all businesses will accept a transfer from your bank account as payment. So for most intents and purposes, your bank balance can be treated as actual 'money'. As long as the financial system is in good health and working properly.

Should the banking system start imploding, don't expect to be so easily able to lay your hands on legal tender, irrespective of how much 'cash' is in your bank account. Also don't expect that promises to pay from commercial banks will be universally accepted as payment.

But gold is recognised as having value pretty much everywhere in the world - that's why people are flocking to it as the banking system looks shaky.

mewbie_2

Max_Headroom wrote: »

It just strikes me that it's a very historical link, no longer really based on anything tangible.

I am no expert on this, but am prepared to give freely of my time to spouting off.

The paper currencies are regarded as risky in times of crisis - Weimar republic inflation, more recently Zimbabwe - where paper money devalued overnight.

If paper is worthless what else have you got that I might accept in payment? Forget cowrie shells, tulip bulbs, or antique furniture.

I am not a gold bug, wish I had a bit but maybe one day might get a sovereign for fun. But in the absence of anything else to pay for my services, and barter with others - I think gold is not a bad alternative.

Of course this is the apocalyptic vision - the other reason for gold investment has been explained more fully - a hedge against things (I've run out of technical knowledge).

Max_Headroom_3

Absolutely, understand all of that. And not suggesting the buying gold is a bad idea (recently it appears to have been a very good idea).

However the fact remains that its value is still simply a matter of mass opinion, rather than anything tangible like a related income from it or other way of earnings.