No. of Recommendations: 2
Yes, gold has no "inherent" value -- it's only as valuable as people believe.

Not 100% true. It has value as a very stable metal (low oxidation) with extremely high conductivity. These properties make it extremely useful for certain electronic applications. It is also extremely ductile with a low melting temperature and high surface tension (as a liquid) and high luster, making it ideal for jewelry. Recently certain metal complexes including gold have been found to have very powerful effects on arthritis with few side effects. However, all else being equal, you are correct since these end uses are very small relative to the amount available.

But it seems the advantage of gold over paper -- and the key difference -- is that you can't just print more gold. You can't control it with a decision of the Fed.

This is partly true. Part of the reason for the creation of the Federal Reserve was precisely that...the gold standard based economy was extremely UNSTABLE in terms of inflation/deflation. However, a closer look reveals why. The Federal Reserve came into being on the heels of the mid 1800's. During that time period, the gold supply in the world went from a few tons to thousands of tons...quite simply, the value of GOLD dropped significantly during that time. Since it was the currency standard at the time, massive levels of inflation kicked in. And since the "New World" (U.S.) was at the center of it, we felt the economic tides much worse than say Europe at the time.

Since then, the effect has largely subsided. Not only that, but especially with regard to the rise of private investors in stocks and other investments, "currency" has essentially taken a back seat and is now purely a means to exchange goods. Everyone (hopefully) recognizes the devaluation game and quickly moves the medium of exchange (currency) from one form of investment to another without holding onto it...basically, people have slowly learned that currency is a game of Old Maid.

At this point from a practical point of view, I don't see that there's a whole lot of advantage to using gold vs. debt instruments (Federal Reserve NOTES) except that as you said, there's private control over the valuation part. To me, the solution is simply to take away the ability to devalue the currency. Once the devaluation rate is frozen, the Federal Reserve will no longer be able to manipulate the "supply" and the whole gold/note conversation becomes moot.
Print the post  


What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.