Gold

[Mr. P]

Okay I am no economist, can someone explain why gold seems to be so important? We’re not on the gold standard anymore, but yet anytime the economy burps we hear “Buy Gold”. Why? You can’t eat it, you can’t use it for shelter, of what use is it really (beside tech)? Who promotes this “Buy Gold” stuff anyway? It seems to me that if we ever had a major economic collapse, and I mean a worldwide collapse, a trade or skill would be what you need to survive, not gold.

Comments/opinions?

 

[5stringJeff]

Gold is considered to be the safest of all precious metals for use as currency, should the world's currencies ever collapse. Silver would be another safe bet, and is much much cheaper.

 

[Mr. P]

Gold is considered to be the safest of all precious metals for use as currency, should the world's currencies ever collapse. Silver would be another safe bet, and is much much cheaper.

I know, but it doesn't make sense..Like I said, you can't eat it etc..trade it maybe, but if things are that bad who wants it? It would be of no benifit IMO.

 

[Toro]

Gold is money.

Gold is jewelry.

75% of all gold production goes to jewelry.

As India and China get richer, there will be more demand.

Forget what all the gold bugs and doomsayers say the reasons are for buying gold. All you have to know is this.

3-4 years ago (when I did this calcuation), the country with the lowest per capita consumption of gold in Asia was China at 0.16g. The second lowest was Pakistan at 0.35g. Yet, China had per capital GDP of $1200 while in Pakistan was $800. Why such a discrepency? Because Chinese could not own gold. Only the government could (legally). However, the Chinese government lifted that restriction and individual Chinese can now own gold. Gold is now traded on the Shanghai exchange.

The great thing about China is that you have a real, live, ready-made laboratory that forecasts what is going to happen to the mainland. Its called "Taiwan" and "Hong Kong". Its great. You have these two little mini-Chinas whose behavior you can map. So, what are the consumption levels in Taiwan and Hong Kong? In Taiwan, per capita consumption was 0.91g. In Hong Kong, it was 2.22g. The GDP per capita for Taiwan was something like $10,000-$12,000. For Hong Kong, around $25,000-$26,000. So China has got a long way to go before they are consuming at Taiwan's or Hong Kong's levels since gold consumption is a function of wealth.

But it doesn't take much. Just to get to Pakistan's level of consumption, China would demand an extra 200 tons of gold per year. How much is that? Global gold consumption ranges around 3500 tons per year. In commodities, that marginal demand is A LOT. That incremental 5-6% demand does not increase the price of gold by 5-6%. It increases it like 20-25%. If China gets to Taiwan's wealth level, that's an incremental 1500 tons of gold per year. Hong Kong? Try 4200 tons per year, more than all the gold in the world produced in any given year.

So gold has underlying demand that will last for decades.

 

[Toro]

Mr P

To answer your question, think of it another way. What is the value of a dollar? There is no true intrinsic value of a "dollar". A "dollar" is nothing. A dollar is the value ascribed to it by individuals who transact. It has value because people believe it has value. Same with gold. Gold has value because people believe it has value. Same with diamonds and other precious metals that are not used in industrial production.

 

[no1tovote4]

Mr P

To answer your question, think of it another way. What is the value of a dollar? There is no true intrinsic value of a "dollar". A "dollar" is nothing. A dollar is the value ascribed to it by individuals who transact. It has value because people believe it has value. Same with gold. Gold has value because people believe it has value. Same with diamonds and other precious metals that are not used in industrial production.

There is also the value of the fact of its rarity. Gold has value because it is rarer than other metals, at least on this planet it is. Silver has less value because it is less rare.

This would be the same with diamonds to emeralds...

There are two factors to value, first people have to want it, then it has to be more rare than say sand.... If too many dollars were made, it would devalue the dollar and create massive inflation, we can see that effect with the Mexican Peso.

 

[Toro]

That's true No1.

Its rare.

But its also

durable

and

pretty!

 

[deaddude]

Diamond is not as rare as its price would have you beleive.

 

[Annie]

I love diamonds. Gold. Silver. Platinum. Pearls too!

 

[CSM]

I think what Mr.P is trying to say is that if you are freezing to death and have a choice between covering yourself with a pile of gold bars or a couple of musty old beaver pelts, the gold doesn't have much value. That is assuming you cannot just go out an buy yourself a decent coat.

I guess it is all a matter of relevance to the situation you are in.

 

[manu1959]

I think what Mr.P is trying to say is that if you are freezing to death and have a choice between covering yourself with a pile of gold bars or a couple of musty old beaver pelts, the gold doesn't have much value. That is assuming you cannot just go out an buy yourself a decent coat.

I guess it is all a matter of relevance to the situation you are in.

in that situation i would take a warm beaver over a gold bar any day

 

[KissMy]

Okay I am no economist, can someone explain why gold seems to be so important? We’re not on the gold standard anymore, but yet anytime the economy burps we hear “Buy Gold”. Why? You can’t eat it, you can’t use it for shelter, of what use is it really (beside tech)? Who promotes this “Buy Gold” stuff anyway? It seems to me that if we ever had a major economic collapse, and I mean a worldwide collapse, a trade or skill would be what you need to survive, not gold.

Comments/opinions?

Just ask citizens of Venezuela. Currently 1oz of silver will feed a family of 5 for a month! You will starve with the paper stuff!