People often assert that gold has no inherent value. I have even seen that assertion on this message board several times. It is my opinion that gold has value to humans because of several of its physical properties. These properties include, but are not limited to, density, conductivity, malleabililty, inertness (resistance to corrosion), and color. Since ancient times, gold has been used as money, currency, and a medium of exchange. It has also been used a store of value.
What would be the value of gold (in terms of price per unit mass) if it were no longer used as money, currency, and a medium of exchange in any way whatsoever? I first thought about also excluding its use as a store of value, but this would be problematic as many other physical substances as well as intangible abstractions are used a store of value such as aluminum, copper, steel, pork belly futures, fiat currency, stock in corporations, etc.
I don’t think we will ever arrive at any number that everyone agrees on. I am more interested in what methodology SDMB people would propose to attempt to determine such a number.
There are a few uses for which I cannot think of a bright line rule to determine if the use is or is not use as money, currency, or a medium of exchange. For example, some uses as jewelry or collectible numismatic items containing gold might be questionable. You cannot have a good argument unless everyone agrees on some definitions. Can anyone propose more refined definitions of money, currency, or medium of exchange that would make borderline cases easier to decide?
As analogy to the uses of gold for non-monetary purposes, consider rhodium. It is also a noble metal but has never been used as money. Yet it has a price per unit mass much greater than gold’s.
It would probably just be valued as much as some super-high quality steel. Its main use would be jewelry, plating, conductivity, etc. So my WAG is, maybe 3-5x as much as what the best steel sells for. So, still a lot less than it sells for today.
Make a list of elements and their relative supplies. How much exists, on Earth, of each element and how quickly is the existing stock gobbled up by industrial processes and other uses? Restrict the list to elements that have had no history of being used as money. See what a basic regression of their supply to their current price looks like.
Then insert the amount of gold into the equation, in order to see what the regression “predicts” would be the price of gold based on its supply. Something along those lines might “work” in a limited sense.
A problem with this suggestion is that the world supply of gold depends in part on people having sought it out for thousands of years. The supply is larger than it might otherwise be if it hadn’t ever been used for money. So it’s possible that this technique would give a price too low, given the potential of a much lower supply in a world where gold had never been used as money.
I’d have to think about that more, tho… The price might actually be similar even with lower supply, because the quantity supplied would increase with price. You can go round in circles forever with this kind of logic until you sit down and write out the equations properly.
Gold is a very useful engineering material that complements the other metals we build stuff out of. It’s wonderfully inert, as metals go – it doesn’t rust or corrode, and it doesn’t tarnish around halogens the way silver does. Its electrical and thermal conductivity is like silver and copper, and because of the lack of corrosion I think it’d be preferable to copper in every way for electrical and plumbing uses. Gold isn’t very strong, but if it were plentiful enough you’d see bridges made of it (just in thicker pieces), and they’d be pretty low maintenance. Gold has very low emissivity, and retains it. You could probably make a nicer durable roof out of gold than any other roofing material currently in use.
You can’t insert the current stock of gold in our world. You’d have to estimate what the stock of gold would be in the hypothetical world, given less demand. But if you can estimate that based on a hypothetical demand for gold, you’d get your hypothetical price directly, no need for any other work.
Doubtful, even if it was as plentiful as steel, but - that’s the issue. Gold is rare. All the gold ever mined in history would make a cube about 70 feet on a side - around 200,000 tons. To give some perspective, the amount of iron mined is 1.8 billion tons per year, so more iron is mined in an hour than all the gold in history.
I think copper would make a better baseline than iron or steel. You can’t make cars or ships or buildings out of copper (I’m sure someone will provide examples of each) but you do need it for electrical conductors and various industrial processes. And while it’s much more abundant than gold, there’s still a limited supply that has had an influence on price.
Untrue. Gold is chemically attacked by fluorine and chlorine. (If there is a significant amount of either gas in the air then your medical problems will be more pressing than your electrical ones)
Its electrical conductivity is 30% less than copper. That is significant.
Pure gold is very soft, and not even usable for jewellery. It is alloyed with copper and silver to make it usable. Probably not a good material for structural engineering.
Gold is not money now, at least where I do my shopping. Are you saying the market price is distorted because of past use of gold coins and bullion? But once you go beyond the actual current price it becomes increasingly tangled and less meaningful to calculate what something is “really” worth.
I don’t use gold for money either. I don’t even have any gold. (But I wish I did.) But it is still considered to be a form of money or medium of exchange by a significant number of persons on this planet today. So this, along with its past widespread use as money and currency, is what I believe distorts it present market price.
I think there’s an interesting question here: how important is color to gold’s value? Would people still obsess with gold if it had all of the same physical properties it has now - but was a dull gray color? You don’t see people talking about hoarding iridium or thallium. (Okay, thallium is highly toxic. But my point is we over-value gold because it’s shiny.)
Wait, though, is it? How many people on the planet today actually use gold as a medium of exchange? I know in theory it is, but pretty much every country on earth uses paper money, coins of other metals, and electrons.
Gold can be distinguished from most other metals because of its yellow color. Gold imparts a distinctive color when mixed with glass in low concentrations. Google “cranberry glass.” Also, just to be pedantic, color and luster are different concepts. “Shiny” is a type of luster. So maybe we could add luster to the list of things that give gold value in addition to color. Maybe there is an industrial application where one needs a highly reflective surface that is resistant to corrosive substances. Can someone give an example?
The value of those pieces of paper in your wallet could be zero tomorrow. The value of those one ounce Krugerrand coins hidden in your sock drawer will never be zero.
I don’t think you will find any recognized government that still uses the gold standard as a basis for its currency today. But I speculate that there are a great number of persons and entities that still use gold as a medium of exchange for large transactions. And many of those are probably very secretive about it.
The value of those pieces of paper might be greatly reduced but I don’t think it would be zero. You could sew them together and make a place mat for your dining room table. Or you could make a deck of playing cards out of them. Or you could use them to start the fire in your wood stove. Or, if you had enough of them, you could use them to insulate the walls of your cabin. Just like gold, they still have some utility even if they are no longer money.
(Or maybe they are so contaminated with coronavirus that you must expend time and resources to properly dispose of them. In which case my argument about everything having utility is stood on its head. Rather than thinking about that, I think I will go birdwatching this afternoon.)
Nonsense. Gold fails the desert island test. If you were going to be stranded on a desert island for a year, how much gold would you want to bring with you? The answer, of course, is none. Gold is useless on a desert island, which means its value is zero. Even if there were other people on the island, none of them would trade you their useful goods like food or water or medical supplies or pornography for your useless gold.
Gold only has value when you have a fairly sophisticated economy where people are producing excess goods and are willing to trade that excess for luxuries. And an economy like that quickly moves beyond bartering for gold and starts using money, which works a lot better as a trade good than gold does.
Checking around I found the “cost” of producing a troy ounce of gold to be variably stated at between $1000-1200. The higher figure appears on a lot of gold seller sites with dates when gold was not much above $1200. So you had to be an idiot not to buy gold from them, right? I also have doubts about the $1000 figure as well. But it’s probably going to be sort of near that on average.
And that’s the rub. “Average”. Different mines, process, etc. have different costs. In particular, a lot of gold is obtained as a side product of mining for something else, e.g., copper. How do you figure in the cost in this case? If gold is at $500 I bet these types of “bonus” gold recovery places will still keep going. How low would it have to go for copper smelters to stop gleaning the gold? And it’s as variable as can be since different copper ores have different percentages of gold associated with them.
In short: it’s a very complex matter.
When gold goes down, some mines shut down. Gold goes up, some re-open.
If gold demand for bullion went away, there’d still be significant demand for it for industry and jewelry. So a few places would close. Gold prices would go down a bit (and stabilize a bit more, but not a lot)*.
I can’t imagine it ever being below $800 long term. So my guess for the OP’s question: $900-$1000.
Unfortunately, commodity markets are dominated by gambling types who completely mess with actual values regardless of the item.
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