Gold has value because it is a currency (medium of exchange) and money (store of value) due to the following properties:
a) Indestructible - bury it in your garden for fifty years, still the same.
b) Infinitely divisible - use it to buy a goat or the neighbouring kingdom.
c) Easy to detect adulteration
d) Stable supply (around 2% growth in supply annually since time immemorial)
e) No other use - Gold is terrible for most other things (swords, stirrups, axes....) so demand for it is purely for its value as a currency.
This is why rich people had a lot of gold - rich people have money and gold is money
There is one other very precious thing and that is diamond, basically the same except not divisible. Silver also caught on but not as much as gold. Pretty much every other metal lacked on one or more of the above properties.
Bitcoin is exactly the same, except you can send it over the wire.
Over the millenia, the properties people have looked for in currency have not changed.
Diamons are a bit more complicated than that, owing to the monopolies on mining/cutting/selling (which likely artificially inflates prices) and general inability to re-sell diamonds near the cost at which they were purchased (which also keeps prices high).
http://www.resourceinvestor.com/2013/04/09/diamonds-driven-m...
Not true, Gold is one of the best conductors of electricity and is used in electronics and wiring.
And because it's shiny so it looks good in adverts.
I don't think that's fair, unless ornamentation isn't considered a "use". Gold is pretty close to ideal for a primitive (and contemporary) jeweler/artisan because it's atypically easy to work with: it can take intricate detailing, it takes a high polish, it doesn't tarnish, it has a pleasing unusual color and unusual density, and it's forgiving (can be melted down). If gold were as common as dirt, it'd still be a preferred medium for ornamental purposes.
Coming from a line of ancestors in India who basically lived a primitive lifestyle until 1950s, I have the knowledge passed down.
Gold is durable. It will last for generations. In a world without digital currency and modern safeguards, real wealth used to be: - Land - House - Cattle - Slaves - Stuff
None of the above (besides land) was durable for multiple decades (or even generations)
So, they created whole social systems around gold, preservation and transfer.
It's my understanding that the richest people in America think gold a barberous relic.
I agree that gold has some interesting properties, but so much of the value-of-gold argument seems to stem from its historical uses. But we've used all kinds of things as currency. Using a metal we have to dig out of the ground seems so backwards to me.
Please see http://svs.io/post/69301254342/bitcoin-fud There are only two things we've used as money (metals and state power)
Gold (and bitcoin for that matter) is a real asset, it is nobody's liability.
Maybe Econ 101 has changed, but I remember learning that "money" was:
- A medium of exchange
- A store of value
- A unit of account
When we were on the gold standard these were all true. Now that we're off the gold standard gold is no longer a medium of exchange or a unit of account, but one could argue pretty effectively that it's a better store of value than dollars have been, and it's done so for throughout history. (I'm talking time periods of decades, not the post 2008 crisis volatility here.)
The fact that the system we're using now is debt-based rather than based on precious metals should't change the definition of money, however.
http://www.popsci.com/diy/article/2008-03/how-make-convincin...
(tungsten. Same density as gold. Wrap a tungsten bar in gold, and you pass weight, density, and surface chemical tests. W is much, much cheaper than gold most of the time.)
If the dollar is a good medium of exchange and store of value, I have no need of gold. Dollars are considerably more convenient. But if the dollar isn't a good store of value (or I suspect it won't be in the future), then I can use gold as a store of value, for the reasons you stated. Gold therefore becomes my alternative to currency. Functionally, it's almost a short on currency.
But the currency has to be fairly bad for this to work. Example: Gold was $1700 maybe five years ago. (Can't get exact dates from Yahoo Finance's current site, so I'm working from memory.) It fell to $1050 maybe a year ago. Now it's $1200. That makes the dollar look like a pillar of stability.
in 1915, or so, Henry Ford released Model T, first mass produced car. The price of Model T at that time was about $300 dollars, which was equal to 20 ounces of gold. Now, 100 years later, 20 ounces of gold still can buy you a brand new car, while 300$ only buys you set of tires and some gas.
Every currency (except the one you have to pay taxes/debts in) is a "short on currency" - all FX crosses are long one currency and short the other.
So if you start finding smold or plold or frold (or creating bitcoin or smitcoin or whatever) that each has those five properties, currency-wise they're in essence all the same thing.
If they're all the same thing, just call them all "gold", (d) for this aggregate no longer holds. However there's no property that distinguishes one from the other as a currency, so you can't just "pick one" and move on. So essentially currency no longer exists.
So for a currency to be stable, its supply has to be stable. The supply of other things need not be.
Also diamond wasn't and still isn't used as a currency. Only in the last 10 years, it became a somewhat semi-serious investment grade material.
No no, food is far too cumbersome to be a token of value. Much better to slip a tiny token into ones waistband and exchange it in the markets. Gold was an exceedingly good token of value.
Diamonds are not currency because they are not easily divisible. But they have been a store of value for centuries now, and that makes them money.
b) necessary but not sufficient
c) not when trading coins
d) no, see spanish price revolution
e) no, see jewelry and ornaments
Gold is useful. Good thermal conductivity and low chemical reactivity with many corrosive compounds.
Using it for money and decoration is perhaps the least sensible thing.
Several others come to mind.
If it's just the pretty, shiny stuff that makes it valuable, then gold will always have some value (bar nuclear synthesis and Star Trek replicators).
If it's scarcity, then there's market manipulation and alternative artificial currency a la Bitcoin.
Gold is actually mostly used for money, decoration, and collecting which is what drives the price to such high levels. I agree it isn't all that sensible when you try to make sense of it.
1) The low chemical reactivity means it doesn't tarnish or break down. This is a BIG one for jewelry--a gold ring still looks bright and shiny 50 years later, unlike other metals, shells, bone, or pieces of wood, dyes, paint, etc.
2) It's continuously divisible into any amounts. You can easily chop a ring in half and sell half of it, if you only want to barter with a portion of your gold.
We don't usually think of decoration as something that's worth a lot of money, but that's partly because we have access to so many cheap organic pigments. Before the 19th century, natural pigments could be very expensive and societies spent a lot of money on them (like the Greeks who painted and gold-plated their statues).
Aluminium had a similar status, at one point it was used for decorating the most fancy things, it was a show of wealth and power and more expensive than gold or silver. If you had aluminium cutlery, you were the bomb. Then they were able to produce aluminium cheaply, instead of mine the small amounts that naturally exist. It became dirt cheap, and thereby lost its status.
Was it any less decorative? No. The cutlery still looked the same. It became uninteresting to use aluminium not because it became ugly, but because it became cheap.
Same with gold. Yes we sorta-kinda like shiny things, but we don't like the gold apple watch the best because we like the tacky golden color so much, we like it because we all know it's expensive. There are lots of pretty metals, pretty colours etc, it's not what gives gold its value.
Of course gold isn't useless, it has industrial applications and indeed artistic applications as you mention. But what is clear as day, is that it trades at a value that far exceeds this use, at a value that can't be explained by its functional utility alone.
-Adam Smith , from An Inquiry into the Nature and Causes of the Wealth of Nations
The fashion and jewelry industries might disagree.
>> "Gold is still rare, but it's also everywhere, roughly speaking. It's geologically distributed like this because it leaves the center of the Earth through volcanoes and other cracks. The Earth's surface has cracks all over it, so gold is all over it."
In context, it's innocent enough, but it's the sort of thing that makes me twitch grumble... (The phrase "fault line" provokes the same reaction... It's not a line! Just say "fault".)
The main part is that a) gold isn't everywhere. It's concentrated in specific areas. and b) Why add the "center of the earth" part in? That's just silly... Next, most(ish) gold deposits are probably sourced from metamorphic fluids rather than igneous activity. It's true that there is a major category of gold deposits associated with felsic magmas, and another associated with oceanic crust production, but way off base that "gold comes from volcanoes".
Next:
>> "Coming from the center of the Earth is going to ensure that gold has qualities not usually seen on the surface."
What?? Yes, gold is relatively nonreactive and relatively soft. That's because it's a noble metal. It doesn't come from "the center of the earth"... Yes, the core is probably enriched in gold compared to the crust, but the gold we mine at the surface doesn't rise up from the core. (In fact, it was probably added by meteorite bombardment after the planet was formed.)
At any rate, enough ranting. Neither of these have any bearing on the topic of the article itself.
I disagree there. I think diligent fact-checking encourages readers' trust. While I don't expect the author to have consulted a geologist, when I read "It's geologically distributed like this because it leaves the center of the Earth through volcanoes and other cracks", I wonder if any of our lava/magma comes from the core, because most of our core is just iron and nickel. We can imagine what a volcano that spews iron and nickle would look like. A quick check on Wikipedia indicates that our magma is formed in the crust and mantle.
Felsic Magmas
(There is a long tradition, among earth scientists, of geological dirty puns.)
If you mean modern mining activity, not germane.
Most major gold deposits are related to orogenic events (mountain building). A significant subset of these are related to fluids associated with felsic magmatism. However, the majority of orogenic gold deposits are linked to fluids that escaped during wide-spread regional metamorhpism, as opposed to volcanic activity. In other words, they're not related to igneous activity, but rather with burial and heating of large regions of rocks. (Note - Metamorphism is not melting.)
That aside, my main gripe is with using "center of the earth".
Yes, many gold deposits are linked to igneous activity. However, even if it is volcanic, what does that have to do with "the center of the earth"? Volcanoes don't source anything from that deep. Nothing comes from the core.
The metorite bombardment I was referring to is an early phase in Earth's history. After the core and mantle segregated, most of the heavy elements should have wound up in the core and been unable to escape. However, we see relatively high concentrations of many heavy elements in the crust and mantle. The leading hypothesis is that the heavy elements were added during the meteorite bombardment phase of the planet's formation. Because the core had already segregated, the heavy elements added this way were able to remain in the mantle and crust.
At any rate, sorry to go on a rather technical rant. It distracts from the main point of the article.
I remember once when my dad worked at IBM, he mentioned the president of IBM was only 5 "bosses" up from him. I was really impressed, until he told me that it's not that impressive, because 10,000 other people are also in the same position.
It's likely another just-so story about gold and the emergence of money from the barter economy.
"Rich people" with lots of stuff in the history we know about were rich because of force and threat, not trade.
Edited to add: that doesn't mean trade didn't happen, just that people mostly weren't "rich" off of it.
What really drives the demand for gold is the social aspect. The primary driver is that rich people accumulate gold and so are associated with it.
This is also why Chanel can charge $3,000 for a purse.
It's also why Apple can charge a premium. It's been a part of their marketing strategy from the beginning.
From pg 78 of Isaacson's biography of Steve Jobs:
The third and equally important principle, awkwardly named, was impute. It emphasized that people form an opinion about a company or product based on the signals it conveys. "People DO judge a book by its cover," he wrote. "We may have the best product, the highest quality, the most useful software, etc.; if we present them in a slipshod manner, they will be perceived as slipshod; if we present them in a creative, professional manner, we will impute the desired qualities."
There's a great deal of value in perception of value. If you have enough imagination to see value in pieces of paper with dead Presidents on them, then you've got enough imagination to see value in perception.
I frankly don't think this piece of deserve any more attention than the few minutes I spent insulting it, but I think my insults require defense. After all, they are probably less trashy than their target (in this case; note: I am generally against insult; but guys, I can't help myself). Here goes the defense (feel free to ignore it; again, just ignore this whole things to save yourself a few precious minutes): 1. Gold is among the most useful material on earth. It is impervious to any kind of oxidization, as well as soft and easy to work with, plus conducts heat and electricity superbly. This means that even the least developed societies can fashion high quality tools out of it (from bowls to utensils to weapon). The idea that somehow gold is useless (beside decoration) is beyond laughable. 2. Secondly, the idea of rich and poor within a lowly bartering-only society is also laughable (well, this one is slightly less obvious than the uselessness of gold). Wealth implies accumulation, which implies settlement, which implies (relatively) high food production capacity. By then, oops, you are talking about relatively advanced societies. There is one thing I have yet to find: a society with wealth that looks at gold with no more than amusement.
So, 1+2 means that a place where rich people only employ gold for decoration is a fantasy by idiots. Again, I am against name-calling, but this is just so.... Sorry, my bad. Anyhow, please save yourself and STOP UPVOTING IDIOCY.
http://www.neatorama.com/2010/11/30/why-gold-is-the-ideal-me...
The Aztec Empire (and most other New World cultures) knew and used gold, and fits your definition perfectly. They used cacao beans as storage of value. The Spaniards — who threw cacao beans in the water but were ready to kill for the gold — were quite a surprise for them.
http://www.mining.com/web/and-then-there-was-none-canada-sel...
Special relativity changes the energy levels of the 5d orbital in a gold atom so that the energy difference between 5d and 6s orbitals equals the energy of a ‘blue’ photon. Gold thus absorbs blue light when electrons are elevated from the 5d to the 6s orbitals, while other metals do not. These special relativistic changes to the energy levels of atomic orbitals are slightly different for each element.
Relativistic contractions on gold’s valence electrons (the 6s subshell) pull the 6s electron very close to the nucleus. Being closer to the nucleus makes the 6s electron less accessible to any potential reactants. Special relativity is not only the reason for gold’s yellow colour but also for its very low reactivity!"
https://jameskennedymonash.wordpress.com/2014/07/13/why-is-g...
https://www.xkcd.com/simplewriter/
And yes, I got that vibe, too. It's the same one I got when writing an article about encryption using it.
I liked the article, although I was hoping to read more about its value as an investment, and how it's survived and thrived through all of our past depressions.
The reason for this is a sort of religious idolization.
>When I was older, I learned what the fighting was about that winter and the next summer. Up on the Madison Fork the Wasichus had found much of the yellow metal that they worship and that makes them crazy, and they wanted to have a road up through our country to the place where the yellow metal was...Our people knew there was yellow metal in little chunks up there; but they did not bother with it, because it was not good for anything.
-Black Elk
All my life, explanations of why gold is valuable have all boiled down to more intellectually nuanced versions of "Ooh, Shiny." But I suggest that gold is agreed to have value because of two traits it has which can be seen as analogous to traits of Bitcoin.
First, worked gold items like coins and jewelry represent a certain measurable and comprehensible amount of work. Not too much and not too little, in terms of available labor resources. Second (as I learned from the TV show Connections), the purity of a nugget of gold can be quickly estimated to a high confidence level by rubbing it on the smooth surface of a black basalt river rock. The deepness of the yellow of the streak on the rock immediately shows the quality of the sample.
So I believe gold is agreed to have value because to our ancestors gold artefacts demonstrated a certain amount of work invested, and the quality of those artefacts could be quickly evaluated with an efficient "proof of work" algorithm.
Why does "proof of work"=value in the Bitcoin ecosystem? In part because it guarantees a cap on inflation (thus preserving value while allowing appreciation), in part because dedicating valuable resources to mining represents a vote of confidence in the system.
I believe the simplest explanation for why gold has value is that there is nothing new under the sun, and analogous reasons applied when gold first came into use in human trading systems.
For example, the idea about the peacock's tail being a good signal precisely because it serves no other purpose (and in fact can be a burden!). It signals that the individual is so well off, he can afford wasting resources on such a "useless" ornament.
According to this story, trading actual goods for a useless ornament would be a strong social signal that you are so rich, you can afford to lose actual resources in exchange for mere ornaments.
I encourage anyone interested in the topic of the origins of money to read "Debt the First 5,000 Years" by David Graeber.
AFAICT there is wide consensus among anthropologists that forms of "money" existed far in human prehistory, and barter was never common in early cultures.
