The True Value of Gold

For as long as human eyes have glimpsed upon gold, human minds have been obsessed with its luster. The love of gold transcends virtually every civilization that has ever came to be, and to this day the precious metal continues to drive a large portion of the global economy.

For most people, their association with gold is fleeting – in the form of rings for a woman, rings for a man, and any other small-scale trinket. But for a select few, gold is a huge industry with enormous payoff. At a time when the inventions and tools created by humans are far more useful and exciting than any naturally occurring rock could ever be, the question must be asked: what is the true value of gold, if there is one, and why is it still so high in the year 2011?

There’s no arguing with the fact that gold is an extremely limited resource – with some estimates putting the entire world’s sum of gold safely packed inside one-third of the Washington Monument. There’s also no arguing that it’s a particularly fascinating and original element: despite being one of the heaviest metals around, a matchbox size chunk of gold can be flattened to the point where it can cover a tennis court. In addition, there’s no challenging the idea that gold has it’s functions – whether that’s conducting electricity or reflecting electromagnetic radiation.

But as a monetary exchange and an investment, serious doubts arise as to the true value of gold. Surely by now you’ve seen advertisements telling you how wise of an investment gold is during a tough economy – and these companies aren’t exactly lying; big-time investors often turn to gold as way to hedge against inflation, as gold is viewed as a timeless currency. However, believing this applies to small-time investors and those concerned about the future state of their finances is a questionable opinion to have no matter how much economic expertise someone has.

That’s because not only are the gains of gold almost impossible to get on a small-scale, big-time investors only rely on gold because it remains an incredibly valuable and limited resource, at least seemingly so. As long as this remains the case, its value is preserved, and it can continue to act as insurance against wily inflation. But if everyone got into the gold business, this allure, which is what drives the current price, will only fall.

Why? Because gold is only as valuable as what the next person will pay for it. Unlike medicine, or technology, or services – which possess within themselves a measure of value that is nearly impossible to alter – gold is just, well, gold. It’s a shiny pretty metal that provides some limited function in society but otherwise is just notoriously awesome, and everyone knows that everyone wants it. This is the shallow reasoning behind the value of gold, and the reason why gold is a bad idea for small-time players looking for long-term gains.

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8 thoughts on “The True Value of Gold

  • Gold has been around for long time as investment method and it will not go away. People will always treat gold with high value and I’m sure it will only go up from here. Long term, gold can be an excellent investment opportunity. We should not ignore gold. Just look at Asian people and see how they treat gold.

  • My point of view is that people should only invest in things that they understand completely. If you’re investing in a company, you should understand how that company makes money and what the risks in its future are.

    Gold in its pure form, is not like that because, as you say, it doesn’t have large scale practical applications. Understanding whether it will keep on rising in value, or crash to its 10 year average is not so easy to predict.

  • I mostly don’t agree with this post, but get that you want to protect small investors from getting ripped off.

    The truth is that *anything* and *everything* is only worth what someone else will pay for it. There’s absolutely no such thing as objective or intrinsic value in anything.

    Once you realize that, then what determines gold’s value? In order to have healthy functioning economy, people need a reliable medium of exchange — something that can be useful for calculating prices without excessive distortion or manipulation. Historically, the people have chosen gold as money through the natural processes of market competition and selection. It has retained its position because it was most suitable for the job.

    In recent times, governments have mandated paper money by edict and law, but giving such power to a small, powerful group has also lead to a great deal of inflation, manipulation, and wealth confiscation. Ultimately, paper has no hard rules behind it and eventually people revolt and discontinue using it. It has happened every single time in history that fiat money has been tried for a long period. We are just too young to think on these longer timescales. 😉

    In my view, the true solution is to return to letting the people choose through natural competition and freedom of choice. If they choose paper backed by gold, silver, or electronic tokens, I really don’t mind, so long as people have the freedom to choose, instead of being forced to choose by those in power. I firmly believe that the economy would be in much better shape if we had honest money (and I don’t mean a manipulated gold standard, either) — how much value would you assign to that? 🙂

  • “This is the shallow reasoning behind the value of gold, and the reason why gold is a bad idea for small-time players looking for long-term gains.”

    Respectfully disagree.

    I’ve known people of modest means in the Middle East, India and China for whom gold jewelry, bars or coins were the ultimate form of savings. Not investment… savings.

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