I can see why gold is headed up at the moment and is a pretty good bet for the immediate future, but surely, except in fairly exceptional circumstances (like now), it's a pretty duff investment.

For a start it pays zilch interest and may even incur storage or insurance changes if you have the real shiny stuff and don't have a good place to hide it. Secondly, they will just keep on digging the stuff out of the ground - a lot more I'm sure, than carelessly gets lost.

Why didn't the stuff lose virtually all its value long before now?

I guess you gold bugs should have no trouble answering this one. Cheers.

I'm not sure what you're asking apart from why gold is valuable?

The question you need to ask is why does govenrment printed 'air backed' paper money have percieved value?

Answer this and you have your answers.

Sorry to be negative but there is a thread on gold about 500 pages long?

printed money has value when people trust it isn't being debased. Of course, when it is, it loses value due to inflation. But we do get interest on our savings which we hope keep up with inflation.

Instead of 'govt printing', read 'companies digging it up' and what's the difference except gold doesn't pay interest. (although it's prettier).

You used to be able to lend out gold and get interest on it. Doesn't that work any more?

It's a question I ask frequently.

Unlike paper, gold is very capital and labor intensive to produce so therefore has an intrinsic value. Other than industrial/jewelry applications that's it.

The gold market is 90% speculation. It moves in sympathy with other asset markets and on fears of paper money inflation. It's another way of preserving wealth independent of the dynamics of other assets like equities.

Like any other commodity it's volatile and can rise/fall quickly.

IMO it's a neutral currency, little more.

What ever anyone believes it to be is just that, their intangible belief. In this respect it is identical to paper money.

Ultimately you sell gold for paper currency to buy something else priced in paper currency.

However, It's the next investment trend so I'm long.

Yeah, unfortunately I only expect to live a few decades longer and I'd kind of penciled in a few things, such as sleeping, eating, taking a crap.

I know I should be more dedicated.

Its difficult after a lifetime of indoctination to see the difference between 1oz gold and a wad of £460 or so in £20 notes for what it is.

I have to tell myself the value of both is set by people, but the gold has an infinately better track record of holding value.

It's certainly highly volatile and in modern history has been subject to decadal bear and bull markets.

In reference to the words I bolded, I believe that real physical gold cannot be inflated willy-nilly and in this respect differs radically from paper currencies.

@The original poster: you can post questions about gold in the main gold thread, which I suspect this site wants as its main theme is house prices. They're not such a frightful bunch, though some weeks you need to take care not to get hit by a wayward rocket.

But why should that be? There must be thousands of times more floating around now than in, say, the Bronze Age. Was an Ounce of gold then worth thousands of times more than an ounce now? I think not.

£492 at the mo.



I'm waiting for the dip.....

hahahhaah....'penciled in a few things...'

'taking a crap'

OMG dumped out here in the coldly glittering depths of the metals subforum! - no chance of reaching 500 pages now.

Hi T&T,

You are asking a very good question and the same one that everyone asks when thinking about investing in gold. Bottom line is that gold has value because people want to own it. Which simply moves the question to 'why do people want to own it?'. I don't think there is one answer to this but several;

1. It has very good properties as an ultimate form of money - finite, is not easily destroyed, divisible, portable.
2. History of wealth preservation - has held its purchasing power for over 4000 years. From www.eh.net you can calculate that gold has fluctuated, in todays money, between £200 and £900 per oz since the middle ages. On this scale £460/oz doesn't look especially expensive. Of course this is, by definition, a weight of history argument and may not predict the future. But it's a long history!
3. Aesthetic appeal - the jewellery connection.
4. Protection against currency collapse. Gold will likely lag other forms of investment during times of expanding real gdp. However, it provides insurance against the possibility of financial and/or economic meltdown. Obvious examples include Weimer republic germany and Zimbabwe recently. Could that happen here? Unlikely but with the parlous state of our economy at the moment who knows?
5. Gold is no-ones debt. Any bank/BS deposit or bond you have is someone else's debt. Ultimately confidence in this paper money is predicated on the belief that this debt can be paid. In the event of mass default your savings would be wiped out just as surely as the debt is. One does not exist without the other.

Further to these arguments it is worth noting that gold is valued most highly by people in those countries that are currently undergoing rapid economic development, BRIC and middle east especially. Also by those that hold the bulk of the worlds remaining energy reserves, russia, ME. As this energy becomes scarcer and more expensive so gold should also appreciate.

wrt your question about how much gold is around, this is currently estimated at 150,000 tonnes. Equally important, however, is that production is declining and becoming more energy intensive - very much like the 'peak oil' scenario originally put forward by Hubbert. Chances are we are past 'peak gold' and total recoverable levels will be less than double the current mined amount. When comparing the amount around now compared to, say, the middle ages, you need to balance that against the massive explosion in population since then.

Rgds
UM

Thanks for the reply Ursamajor, all your points make very good sense. I guess another reason for gold's continuing value is that it's so physically stable and doesn't corrode or tarnish in any way.

Interesting point about the value of gold corresponding to the amount circulating in relation to the world population (in fact, I suppose the population within the area the metal is traded). Perhaps the size of that economy would be a more accurate criteria and gold holds its value only when the economy expands at a fast enough rate. - though thinking about it, that rather contradicts the rise in it's value when the economy is spiralling down (a short tern effect perhaps).

- just a few undeveloped musings...