Is gold worthless?
In the spirit of the Motley Fool, I am about to ask the one question that dare not be asked. I am sure it will bring a fire storm of protests, but the question will remain.
OK, here goes...
Isn't gold a fiat currency?
I hear a lot of people wanting to rush to gold to protect their assets. One day I stopped to ponder why.
I decided to look around my house to see what purpose gold served in my life. I found the following:
1) My wife had a small amount of gold jewelry, I had a gold wedding band, my fancy pen had a gold ring on it.
2) Our nice china had a very thin gold ring all the way around the outside edge of the plate.
3) My A/V receiver in the living room had gold plated input/outputs on the back.
That was it. The first two uses of gold were for ornamental/decorative purposes only. The third supposedly had an electronic function but my other A/V receiver without gold plated I/Os sounded just as good as that one.
So I asked myself, "If gold were suddenly removed from my life, how would my life be compromised?"
The answer was rather shocking. Not at all.
My wife would still be as pretty. I would still be married without the wedding band. My pen would still write. My plates could have a different color edge and I don't think I'd really care. And my music would sound the same as far as I can tell.
Hmmm... So why is gold so valuable?
I searched the web, the industrial uses I found for it were minimal at best. Most could replace gold with some other substance.
I still hadn't answered the question. There was no reason that I could see that gold couldn't be totally removed from the Earth and we probably wouldn't blink an eye.
Gold had been used as a medium of exchange in the past, but so had cowrie shells. There was really no difference between the two. They both were a limited commodity that one could occasionally find with a lot of effort.
The only conclusion I could come to was that gold is valuable because we believe gold is valuable. Circular reasoning.
That is the classic definition of fiat currency.
It would also explain why gold has refused to shoot through the roof with the recent stock market decline.
It occurred to me that in this global re-evaluation of values, people worldwide are shaking off their belief that gold has value.
Whoa, that was a mind numbing thought to me.
So the question remains...
"Isn't gold just another form of fiat currency?"
OK, your turn...