I don't quite understand gold

[banditfist]

Actually, in 1933 is when FDR seized personal gold holdings and made it illegal for you to own. In 1972, Nixon closed the gold window that allowed foreign nations to turn dollars into gold ala Ft Knox.

Gold is not a commodity. It is used in electronics, but not to a meaningful amount compared to supply. On the other hand, silver is a commodity and is used in many industrial processes.
Gold is/was a store of value. It cannot be inflated like fiat paper money.

[tripods68]

The End of the Gold Standard
With this run on gold in 1971, President Nixon brought an end to the gold standard by refusing to pay out any of the U.S.’s remaining gold in exchange for paper dollars. U.S. dollars could no longer be redeemed for gold by foreign governments and central banks. It wasn’t until 1975 that the law making it illegal for U.S. citizens to own gold was eliminated after existing for 42 years.

Since 1971, fiat money, rather than gold-backed money, has been the type of currency used in all major economies. Because a fiat currency is not backed by a resource that’s limited in supply, such as gold, there’s no physical constraint on the amount of money the Federal Reserve may print.

As the U.S. Federal Reserve prints more paper money and increases the money supply, the demand for gold tends to increase as more people and institutions buy it as a way to preserve the value of their money against inflation.

YouTube - Nixon Ends Bretton Woods International Monetary System
Money Girl :: The Gold Standard

[Broken Arrow]

The appeal of gold eludes me as well... I know many have already responded to this, but I'm going to take a stab at it as well if you don't mind.

True, gold is a viable alternative as a hedge against inflation. I've never disagreed with that, and have recommended that as a conservative option in a passive portfolio.

Also, if the value of gold itself does not decrease, it would also mean that it will not increase either....

That said, gold ETFs can change in value. However, that's driven purely by speculative interest. While we're at it, it's important to note that the quantity of gold (or any other precious metals) found in these ETFs can change as well. For example, in order to prop up a lagging ETF, the fund company may decide to add so many ounces of gold to the fund, at any point in time.

Scanner is pointing out a very real risk of a company that can fold and lose its value completely. That's true, and it's something to be aware of. To be fair though, it's also entirely possible for a company to do very well and experience tremendous growth. To take it a step further, it's also technically possible to pull enough gold out of an ETF to bring it to near folding point, but to me, that's just as unlikely as Disney folding by refusing to make any more movies and stopping all the rides.

Finally, the dollar has been experiencing a precipitous fall for the most part of this recession. So, I'm not aware of a bubble, and if there was one, it's long past now. In fact, more than anything, the Dollar is being debated as a value play with the forex folks right now.

[boosami]

Why does gold have value? Gold, like many things in economics, has value because people think it has value. Simple supply and demand. There is more demand each year than gold that is produced. People who are holdings physical gold sell their holding to make up that delta (at a nice profit!).

Why do people buy gold to hedge off inflation? Since our money is not backed by anything physical, it has no inherent value. Inflation fears make people want to buy something that physically has inherent and relatively stable value. Commodities provide just that. When the dollar is severely inflated, they can trade that commodity for an equivalent amount in the inflated currency. People buy silver, platinum, bronze, and plenty of commodities for this reason.

But why gold? Gold has inherent value. 75%+ of all produced gold is used in manufacturing something (jewelry, electronics, etc.). In general, gold just happens to be a popular candidate because it used to back our currency and almost everyone is familiar with it because of its popularity and importance historically and in jewelry.

[boosami]

Krap!!!! I'm moving to Morocco.

You really want to get scared? Watch the Money as Debt video.

YouTube - Money As Debt (1 of 5)

[disneysteve]

Why does gold have value? Gold, like many things in economics, has value because people think it has value.

But why gold? Gold has inherent value.

Am I the only one who sees these statements as being contradictory? First, it says gold only has value because people say it has value. Then it says gold has inherent value. Those can't both be true.

In an economic crisis, would you rather have a few cases of canned food and a stock of bottled water or would you rather have a shiny gold coin? The food and water has inherent value because it is needed for survival. The coin is not. It only has value if you can find another person who wants it and is willing to exchange something useful for it.

[swaymonae]

Agreed.. I understand certain aspects of it.. but the question really behind everything is "why?"

I also agree on not purchasing gold right now.. much less anything else. I would likewise only be selling it if I had any.. not big on jewelry.. lucky the man who marries me

[boosami]

Am I the only one who sees these statements as being contradictory? First, it says gold only has value because people say it has value. Then it says gold has inherent value. Those can't both be true.

It should say "gold has value because it is in demand." I was just trying to illustrate that if an item is in demand, it has worth. The inherent value of it is that it has a use. If people didn't want it, and we didn't use it for anything, it would have no value.

[Scanner]

My thinking isn't necessarily apocolyptic. . .when I say the US Dollar Bubble will burst, that doesn't necessarily mean that it won't be worth anything. . .it's kind of like your house in California.

Instead of it being worth $500,000, it may now be worth $220,000.

I own a silver ETF but yet it still trades in US dollars. . .we will always need a paper currency, whether fiat or not.

Honestly, there is a lot of downside risk for gold (or silver) right now. . .but is the downside risk more for silver, gold or a Bank of America share?

I tend to make my investment decisions based on downside risk anymore. . .there are usually thousands of upside rewards. . .downside risks usually motivate me. For instance, with oil at $40/barrel. . .I didn't see too much downside risk.

[Scanner]

And dont think Disney is too big to fail.

It's isn't.

If GM can go bankrupt, so can The Mouse.

I don't think Eisner did that great of a job with the company the last decade and was a bit of a boob, especially when it comes to TV shows and the lost creativity there. Other than High School Musical and Hanna Montana, (the tween market), Disney has lost the hearts and minds of kids to Nickalodean (SpongeBob, Blue Clues, Dora). IT's a shame really, figuring at one time THe Mickey Mouse Club was da' bomb.