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originally posted by: ScepticScot
Saying supply and demand doesn't really answer the question unless we understand what generates the demand.
Gold has always been overvalued relative to its practical applications.
The fact that it does not tarnish or is easy to work with does not give it value unless there is an advantage to that.
The best use of gold seems to be the one it was used for centuries which to make currrency. Now that that is no longer the case, is its current value based on new uses (of which there are quite a few) or based just on history and belief in its value.
Even its use as jewellery is not a sufficient answer. Do people use gold as jewellery because it's looks good or because it's an expression of wealth?
originally posted by: ScepticScot
a reply to: scojak
The question is what creates such high demand for gold.
originally posted by: ScepticScot
a reply to: scojak
I did read your reasons, they included religious reasons and aliens. Strangely I was not fully convinced that explains the value.
The point isn't that gold had no use, it's that many other metals are more useful and much much less valuable.
No one is disputing that value of a traded commodity is the result of supply and demand. The question is what creates such high demand for gold.
The face value of gold coins used as money has (up until the link between gold and money was removed) been higher than value of the gold in the coins. The reason for this should be fairly obvious.
I think the case that gold gets its value from its historical use as money is fairly convincing. It may not be the the only reason but I suspect it is the main one.
originally posted by: ScepticScot
a reply to: scojak
I am not completely discounting any of the reasons (except maybe the aliens). I am saying I find then then unsatisfactory or further down the chain.
Take the belief in medical properties. To me the reason why people would belief it has such properties is tied up with it having value (people like to ascribe powers to things if value) rather than a cause of the value.
Same with decorative use, the reason gold has remained more or less immune to changes in fashion is because it's a display of value. It's value makes it desired jewellery rather than its use as jewellery giving it value.
No one is saying gold has no value now or historically other as currency, but rather it's value is far in excess of what we would expect from its actual practical applications.
Of course nominal value of coins was above the metal value, otherwise they wouldn't be used at the nominal value.
The primary uses of gold for the last few thousand years has been as a medium of exchange and a store of value. Its properties and scarcity made it ideal as a currency.
There is no definitive right answer, it is just a matter of opinion. However its use as s currency seems the best explanation to explain its continued high value to me.