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Author is right about the gold comparison. Only 10% of the gold produced worldwide is actually used only for its intrinsic value (physical properties in industr

by mrb 9y ago

Author is right about the gold comparison. Only 10% of the gold produced worldwide is actually used only for its intrinsic value (physical properties in industrial uses). 90% is used "just because it has value" (ie. stored in a vault or used as jewelry[1]). So its intrinsic value is completely insufficient to justify and support its market price which is in fact driven by speculation, not by industrial demand. [1] Many other shiny, corrosion-resistant, and cheaper materials exist and would make more sense to use for jewelry. But when gold is used over these other materials, it is almost always for the only reason that it is more valuable.

dsacco 9y ago
That's slightly incorrect. Gold has intrinsic value beyond industrial uses. Intrinsic value doesn't require utility (but it often includes it), it only requires a use beyond a consensus exchange rate and speculation. Many people enjoy using gold in jewelry for its own sake, not because they want to speculate on it. That enjoyment functions as organic demand, which increases the price. As long as a thing has consumer demand that doesn't derive from speculation or decay quickly with time, it can have intrinsic value. Phrased another way, "jewelry" and "dentistry" are both legitimate uses of gold, because they both create organic consumer demand (and from what I can tell most people don't use gold in jewelry for speculative reasons). The author's usage of the word "intrinsic" is confusing to me, because its fuzzy and imprecise. He's not really using the term in the traditional financial sense, as you would in e.g. fundamental valuation, or options pricing (theta decay, etc).
- mrb 9y ago
  "Many people enjoy using gold in jewelry for its own sake, not because they want to speculate on it" I disagree. But it's not because they want to speculate. People enjoy solid gold jewelry over gold plated jewelry for the only reason that the first is "more valuable" and is associated to a "higher status." They also prefer real gold over gold imitations for the same reason. Here is a thought experiment: if gold prices fell to $0.001 per gram tomorrow, would people continue using it in jewelry? No. I guarantee you demand for gold would dramatically fall in jewelry. About 50% of the gold produced ends up in jewelry. Most of it ends up in solid gold / gold filled jewelry items (the rest in gold plated items.) And my claim is that demand for these solid gold / gold filled jewelry items would fall.

by mrb 9y ago

dsacco 9y ago

That's slightly incorrect. Gold has intrinsic value beyond industrial uses. Intrinsic value doesn't require utility (but it often includes it), it only requires a use beyond a consensus exchange rate and speculation. Many people enjoy using gold in jewelry for its own sake, not because they want to speculate on it. That enjoyment functions as organic demand, which increases the price. As long as a thing has consumer demand that doesn't derive from speculation or decay quickly with time, it can have intrinsic value. Phrased another way, "jewelry" and "dentistry" are both legitimate uses of gold, because they both create organic consumer demand (and from what I can tell most people don't use gold in jewelry for speculative reasons). The author's usage of the word "intrinsic" is confusing to me, because its fuzzy and imprecise. He's not really using the term in the traditional financial sense, as you would in e.g. fundamental valuation, or options pricing (theta decay, etc).

mrb 9y ago
"Many people enjoy using gold in jewelry for its own sake, not because they want to speculate on it" I disagree. But it's not because they want to speculate. People enjoy solid gold jewelry over gold plated jewelry for the only reason that the first is "more valuable" and is associated to a "higher status." They also prefer real gold over gold imitations for the same reason. Here is a thought experiment: if gold prices fell to $0.001 per gram tomorrow, would people continue using it in jewelry? No. I guarantee you demand for gold would dramatically fall in jewelry. About 50% of the gold produced ends up in jewelry. Most of it ends up in solid gold / gold filled jewelry items (the rest in gold plated items.) And my claim is that demand for these solid gold / gold filled jewelry items would fall.