Why does gold go up in price?
Bob-tx
pretty well come to the conclusion that it is mostly emotion.
I can understand why iron, copper, aluminum, etc go up and down in
price since they are used in manufacturing. When there is a demand
for products using these materials (cars, buildings, aircraft, etc)
then there is a demand for these metals and the price goes up. Low
demand, price goes down.
But little gold is used in manufacturing - some electronics,
jewelry, and a little dentistry, but these products are not going to
make the price of gold fluctuate much.
So, I figure it must be emotion such as when the dollar loses value,
then people look for something else to put their wealth into - hence
gold goes up. But what is the real value of gold.
Can someone explain.
Thanks, Bob-tx
RWF
news:4967436a$0$5475$bbae...@news.suddenlink.net...
> But what is the real value of gold.
The value of anything is what someone is willing to pay.
Mike Marotta
> I have been wondering what makes gold go up in price, and have
> pretty well come to the conclusion that it is mostly emotion.
The best way too think about it is to see gold as money. It is the
best form of money for most purposes. (See exceptions below.) That
is why, historically, gold coins have been the preferred medium of
international trade. Even in the Classical Greek world, which was
monetized on silver, gold coins were most highly valued.
Realize that over thousands of years on six continents, the discovery
of gold did not greatly change its value, whereas, by comparison, huge
strikes of silver did cause silver inflation, cheap silver money.
You passed off "jewelry" too easily. In the Bible in the Old
Testament, before the invention of coinage, jewelry was money. "They
gave ear rings of a shekel's weight..." Jewelry has always far
outpaced coinage for the use of gold even in the 19th century when the
US, UK, Germany and others went on the gold standard. Most people in
most times and places relied on gold jewelry as a form of savings.
Today, gold is still the standard against which other money
substitutes -- dollars, euros -- are measured. This goes beyond
American patriotic gold fever. Right now, I have a graduate class in
International Monetary Economics. Every nation has an inflation rate,
some more, some less. Therefore every currency will fall in value
over time relative to gold.
-----------
Exceptions to gold. If Bill Gates were to liquidate his share of
Microsoft for gold, he would need tens of thousands of men, each
carrying 100 lbs, to haul it away. On the other hand, he could put $3
billion on a debit card and carry it in his wallet. For thousands of
years, gold was more portable than cows. Today, we move wealth
electronically.
------------
Still, gold remains the best STORE of wealth because it is almost
immutable -- and the known amount (mines; oceans; asteroids) is pretty
well estimated.
Mike M.
Michael E, Marotta
Aurem non olet -- gold leaves no traces.
Mike Marotta
> "Bob-tx" <bobwh...@suddenlink.net> wrote in message>
> The value of anything is what someone is willing to pay.
That ought be carved in Mount Rushmore. As I said above, I have a
graduate class in economics this semester and even so-called free
market theorists attempt to reverse cause and effect by placing PRICE
on the DEPENDENT axis, the ordinate or Y-axis. They think that if you
produce something the Quantity produced is an independent choice.
They don't see that how much of anything is produced depends on the
entrepreneur's estimate of the price people will be willing to pay.
That, too, is subtle, that the decision is forward-looking -- the
price _expected_. On the other hand, government decisions -- even the
best of them -- are backward looking: justice attempts to remediate
injustice, which already occured in the past.
These ideas all take on material reality in our hobby: we buy and
sell money for fun.
Numismatics is a pure, unregulated market. Even the controls are self-
regulating. The ANA Code of Ethics is one such. RCC's exchange of
information is another. That, too, is an igored axiom. The SEC and
other government regulators, based on college economics classes, dream
that markets depend on "perfect information" but in fact -- as
numismatics demonstrates -- knowledge is unevenly distributed, has
value, requires production, and is traded.
Mike M.
Michael E. Marotta
"My von Hayek is Selma, not Friedrich"
mazorj
"Mike Marotta" <mer...@torchlake.com> wrote in message
news:c0abd3c2-25cd-4a50...@x16g2000prn.googlegroups.com...
...
< The SEC and other government regulators, based on college
economics classes, dream that markets depend on "perfect
information" but in fact -- as numismatics demonstrates -- knowledge
is unevenly distributed, has value, requires production, and is
traded.
True, but numismatists have tons of additional pricing information
available to them now through marketing sites like e-Bay, seller
websites, and on-line industry/hobby publications. Within limits, if
you paid too much for a coin according to current market, it's your
own damn fault. Ditto for lack of technical knowledge such as coin
grading, mint variations, and the relative scarcity of specific coins.
That's one of the reasons for the decline of coin clubs as previously
discussed here. Clubs provide a trickle of this information. The
Internet feeds you with a fire hose.
It would be an interesting project to look into how much the Internet
has contributed toward more perfect price information, which generally
drives prices down. One of the reasons that airlines have fared
poorly is because their relatively opaque pricing schemes - which help
keep prices up - have been unmasked on the Internet. In a few
minutes, travelers can get a fairly accurate picture of pricing
options from the airlines and from third-party resale vendors. The
airlines' ability to exploit imperfect consumer information to set
prices at profitable levels has been largely eliminated.
And all this information is available to anyone, anywhere, for the
price of a cheap computer and an ISP account!
Paul Ciszek
In article <4967436a$0$5475$bbae...@news.suddenlink.net>,
Bob-tx <bobw...@suddenlink.net> wrote:
>I have been wondering what makes gold go up in price, and have
>pretty well come to the conclusion that it is mostly emotion.
>
>I can understand why iron, copper, aluminum, etc go up and down in
>price since they are used in manufacturing. When there is a demand
>for products using these materials (cars, buildings, aircraft, etc)
>then there is a demand for these metals and the price goes up. Low
>demand, price goes down.
>
>But little gold is used in manufacturing - some electronics,
>jewelry, and a little dentistry, but these products are not going to
>make the price of gold fluctuate much.
The supply is also quite limited, though. Industrial uses for gold
are pretty much limited to applications for which nothing else will
do; if there were a good alternative, they would be using it instead.
--
Please reply to: | "Any sufficiently advanced incompetence is
pciszek at panix dot com | indistinguishable from malice."
Autoreply is disabled |
mazorj
=======================================
Good points. Once you factor in that we're willing to pay a premium
for gold, over and above its rationally calculated utility for
commercial and monetary needs, and how that willingness fluctuates
over time in response to short-term events, gold prices make more
sense.
However, there was an NPR piece yesterday on gold mining that made me
rethink long-term gold pricing. The story was about the social
conditions of miners who go to remote areas to glean small, leftover
pockets of gold that were overlooked or left behind by commercial
mining operations. But the story also said that like oil, we've
picked almost all the low-hanging fruit of gold mining.
I don't know how much remains in known deposits of commercially
(easily) minable gold, but if it's true that we've exhausted and/or
already are tapping all the decently big lodes, the common-sense
implication is that in the not too distant future we no longer will be
able to pull large amounts of gold out of the ground at current prices
the way we can with common minerals like iron or aluminum. Gold
demand for industrial uses and monetary reserves isn't going to go
down. If anything, our emotionally based willingness to pay a premium
for it will go up in response to perceived scarcities. This will
further inflate prices. So long-term, we can expect significant price
increases.
Of course, in the long-term we all are dead and meanwhile, short-term
pricing will be influenced much, much more by immediate events and
conditions. Still, it's something to think about. I'm not gonna go
on a speculative buying spree but socking away a few bullion pieces
for each of the kids and grandchildren not might be such a bad idea
after all.
"Aurum durat"