Why is Gold Worth Anything!?

sabretoothtigger

eyes have no value because no labour

You obviously never looked after kids, plenty of labour, time and money spent.
In poorer countries I think they consider their family more like a business investment that pays for old age, etc So people as an investment ranks highly to many

I think the value of a currency is from its gdp and largely thats labour of the people collectively valued in international trade and also thats why gold is ultimately a poor investment, its a currency with no country, no gdp in its support.

At present its value is inflated by other currencies self destruction of value rather accumulating anything itself
Price of gold adjusted for inflation from 1913 to now is $550, not sure how accurate that is exactly but if it rises above inflation its most likely overvalued long term imo

laehc

My argument in favour of eyes having no labour is a bit tasteless so here's a different example. Imagine two old houses, fairly similar except one has fallen into the sea. Are they both supposed to have the same value? They might even have the same architect, who might not have considered future submersion in either case.
It isn't hard to think of cases where utility or exchange value do not reflect labour input, unless 'labour input' takes on some technical meaning fairly different from ordinary use.

DiggerUK

I was going to start with a smart @rse comment about going to specsavers, but I'll pass.

"Labour input" is a helpful phrase, aka "added value" in current vernacular.
What needs to be remembered is that some exertions bear fruit, and some don't. The parable of seed on stony ground and seed on fertile ground is an early example.

With gold it is the same as any other product, some people have their efforts rewarded and hit the mother load, some don't.
Some people bring a product to market and fail (Betamax), some bring VHS to market and succeed. Then someone else brings DVD. Then someone brings Blu Ray. Then the rest of us say sod that for a game of cricket, I'm watching it on the net.

All the classical economists argued about this in different ways, referring to different forms or types of labour.
For example, wasted/useless labour, socially necessary/unnecessary labour, productive/unproductive labour. And a dozen others I can't remember.

Gold going up and down in price does not represent a change in value of gold, it's a lump of elemental metal for christ's sake, same today as it ever was.
It's the value of the paper that changes. The pog represents nothing more than the real value of paper, and that is being debased at a rate of knots.

The usual suspects pacify the ripped off at the moment by claiming they are only suffering "paper losses" they're right, just as the ripped off are only suffering "paper gains" at other times.

sabretoothtigger

first part of the article by martin hutchison


Waiting for the train-wreck
by Martin HutchinsonNovember 16, 2009
The rise in the gold price above $1,100 per ounce last week is a pretty good indicator that something has changed. For 18 months, the gold price had been in a trading range topping out around $1,000. It has now broken out decisively from that range. The opportunity for the world's central banks to change policy and affect the economic outcome has been lost. The world economy is now locked on to an undeviating track towards another train wreck.

At most times, the gold price is not an economically significant indicator. In 1980-2000, it declined irregularly from $850 to around $280, and movements in it seemed to have had little or no effect on the global economy. That's what you'd expect; even at $1,000 per ounce, the global production of gold is only around $100 billion annually, which would put the entire world's gold extraction industry only 17th on the Fortune 500. When Gordon Brown sold Britain's entire gold reserves in 1999, at a price below $300 per ounce, it seemed a defensible decision. I went to a meeting in 2001 hosted by a diverse group which believed that the U.S. Treasury was conspiring to suppress the gold price, and my main thought was: why would Treasury bother?

However, in relatively few periods, gold becomes of immense importance. When investors lose trust in conventional currencies, because monetary policy appears set to debauch them, gold is the immediately available safe haven. During such periods, gold's former importance as a store of value becomes uppermost in the public mind, and its price becomes a major economic indicator.

Gold became important from about July 1978 to early 1980, during which period its price rose from $185 to $850 per ounce. For that 18 month period, the price of gold was the most important factor in day-to-day market fluctuations. The gold price, more than the inflation rate directly, moved markets and by extension moved monetary and to some extent fiscal policy in the major economies. Only after Paul Volcker took over at the Fed in late 1979 did M3 money supply begin to supplant it in investors' analyses.

We now appear to be at the beginning of another such period. The exceptional monetary stimulus entered into around the world during the financial crisis last year has prevented a downward liquidity spiral, but at the cost of destabilizing markets. Both monetary and fiscal policy dials are stuck at settings that would have been unimaginable two years ago. While this has produced only the beginnings of economic recovery, it has brought a 50% bounce in the U.S. stock market, a return in the oil price to around $80 – at the top end of the historic range, adjusted for inflation – and now a breakout by gold above its historic high. The repeated previous failure of gold to break above $1,000 per ounce made it all the more significant when it finally succeeded in doing so.

Ben Bernanke's Fed is ignoring this. It insists that it will maintain interest rates at the current near-zero level for an extended period, regardless of what the gold price does. By this, it is ensuring that the present bubble in gold and commodities will play out to its full extent. Had the Fed begun to tighten gently during the late spring or early summer, when it had become obvious that the U.S. economy was bottoming out, but while stock markets remained subdued and gold remained within its 2008-09 trading range, it's possible that it could have deflated the incipient bubble, steering the U.S. and global economies back on to a sustainable growth path. The U.S. Treasury would have had to cooperate by beginning to reduce the federal deficit, but at this stage with unemployment in the 10% range, there would have been no need for draconian action on that front.

With current Fed policy, gold is headed rapidly toward $2,000 per ounce, probably within six months. The forecasters who see such a price, but suggest it would take four to five years to get there, are ignoring history. Since gold was able to get from $185 to $850 in 18 months in 1978-80, there is no reason why it cannot get from $1,100 to $2,000 in six months now. What's more, although 1980's peak seemed madness at the time, and was equivalent to nearly $2,400 today, there is no reason why gold cannot go much higher if it is given another year or so to get there. The supply of gold from new mining is around 1 million ounces per year LESS than in 1980 and the supply of speculative capital that could flow into gold is many times greater. Hence, a $5,000 gold price is possible though not certain, if present monetary policy is continued or only modestly modified – and that price could be reached by the end of 2010

As was demonstrated by the housing bubble of 2004-06, modest rises in interest rates are not sufficient to stop a bubble once it is well under way. Given the Fed's recent track record, it is most unlikely that we will get any more than modest and very reluctant interest-rate rises. Even if inflation is moving at a brisk pace by the latter part of next year, the price rises will be explained away, or possibly massaged out of the figures as happened in the early part of 2008. Hence the bubble will inexorably move to its denouement, at which point gold will probably be north of $3,000 an ounce and oil well north of $150 per barrel. Even though there will be no supply/demand reason why oil should get to those levels, and gold has almost no genuine demand at all, the weight of money behind those commodities in a speculative situation will push their prices inexorably upwards, beyond all reason until something intervenes to stop it.