The device you're using to read this comment couldn't function without gold. It's an incredibly useful element. Investment and speculation might have inflated the value of gold, but industrial demand sets a price floor.
This simplification misses the point. Unlike paper money and stocks you can't print more Gold. That's why people fall back to it again and again. Also it has _some_ intrinsic value in various applications. I am not arguing we should be using Gold, only that the statement you make, while true on the surface, glosses over the entirety of the interesting and relevant points about its use as money, historically and today.
Gold isn't a currency at the moment. Even if no one wanted gold for its store of value properties, they'd still want it for electronics, science etc. at which point the market would revitalize.
This is why I'm holding gold (as a hedge against the stock market in these weird times). There is a buyer who will buy no matter the confidence in it. Gold is an important ingredient in, for example, electronics. Your computer and smartphone all have gold in them.
Did you ever consider why gold has value? It's just shiny metal. Other than jewelry and some electronics uses, no one needs it. At one point it was useful to make coins (for fiat currencies) because it was rare, but now it's just valuable because "it always has been."
> you're thinking of golds meager utility as a "commodity" and you're right -- but almost non-existent commodity utility is its greatest strength as a reserve and savings asset -- there is no competing usage so it can fully absorb value without disrupting anyone else's business or livelihood. Just ask the central banks of the world, the kings of the past, the Chinese, Indians, Russians, Brazilians... or our grandparents! This stuff is not only virtually undestructable over centuries; neither can it be diluted or produced at will -- the physical kind, that is:
Gold has historically been used as a reserve of wealth because it's malleable (so can be formed and/or split for convenience), abundant enough to be feasible for currency use, relatively simple to purify, and because people wanted it. The only things that are compelling about gold in modern times is that people want it and that it has a limited supply. Unfortunately, gold is also very limited as an investment. As far as assets go, it's historically not done as well as other asset types. Gold has some "intrinsic" value, but it's value doesn't really increase (nor generally does its price over the long term). In comparison, a dollar in a bank account draws interest (though lately that's negligible) and a share in a company may grow in real value as that company's profits increase.
> That's its strength, it can absorb unlimited nominal "value" -- if houses couldn't be built from the ground up, they'd be almost as "good as gold" -- just not as durable, fungible, divisible, portable and compact. Plus "housing" implies a competing "social" use. "Do not speculate in houses, people need to live in them", some will moan -- "do not speculate in pork bellies, people need to eat", some will moan. Who will complain about physical gold being "overpriced"?
No one will complain about physical gold being "overpriced". They'll complain about the drop afterward. This is what happened with housing as well. Very few were complaining about the price on the way up as they indebted themselves to buy 2x what they could afford and 3x what they needed. But they sure complained when home prices started dropping. If everyone were putting their money into gold, you could be sure they'd start screaming about their "retirement funds" when gold started dropping.
> This is the best part... physical gold is a steal as its current price is still being 'discovered' exclusively on the paper commodity exchanges, where new demand is still largely met with freshly printed certificates. Paper gold, I agree, is highly overvalued. That means, physical gold today is tremendously undervalued! Even gold in the ground, not yet mined, is already being traded in paper by speculators! It will be a spectacle one fine day when they try to collect in specie -- if ever. They're in it for the paper profit and sure enough they will be paid off in nominal terms.
I don't agree with this assessment. Physical gold is by and large priced to match the paper variety. When prices fall on the market, they'll fall for physical gold as well.
golds inherent value is worth like 10 percent of the value people put in it for speculation purposes. If gold was only used for electronics it’d be worth a lot less. in fact, there are things far rarer than gold and actually used more but worth a lot less.
This argument gets repeated again and again, but it doesn't have roots in reality. The market value of gold is far, far in excess of what the demand from industrial, scientific, fashion and jewelry use cases dictate. In fact, these uses exist despite the fact the gold is very expensive. (Perhaps with the exception of the latter two, which are popular because of gold's high market value. But they do not themselves cause it).
If gold and other precious metals did not have their historical use as a currency and the trust of markets (and its suitability as a currency, I suppose), they would be worth at least an order of magnitude less than they are today. And it would be mined a lot less of them.
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