Man's absurd tendency to buy gold during economic recessions

[Ryan Rudolph]

It is irrational, yet totally understandable why humans cling to gold investments in very difficult economic periods. When everything else is decreasing in value, people cling to gold believing in it - similar to how a Christian believes in his fantasies of savior. It is very bizarre behavior. Gold is another one of man’s wives. The present belief in buying gold is based on a false assumption. Namely, that gold has value in and of itself. Moreover, I can understand why copper, zinc, nickel, and tin have some inherent value because they can be used to make things that humans need for survival. However, gold doesn’t quite fit, humans become fooled by its scarcity, shininess, color, and many other unique physical properties, but it isn’t as useful as many other metals, so is it not irrational that people believe it is more valuable than most of the other practical metals?….

Moreover, just because something is scarce, and shiny shouldn’t give it inherent value, it needs to be useful as well. Man’s bewitchment over gold is similar to his bewitchment over feminine beauty. He spends way too much money securing a stash of both, when he would be a lot better off without either.

“Real” Gold is the Fool’s Gold in my opinion.

[Philosophaster]

The present belief in buying gold is based on a false assumption. Namely, that gold has value in and of itself. Moreover, I can understand why copper, zinc, nickel, and tin have some inherent value because they can be used to make things that humans need for survival. However, gold doesn’t quite fit, humans become fooled by its scarcity, shininess, color, and many other unique physical properties, but it isn’t as useful as many other metals, so is it not irrational that people believe it is more valuable than most of the other practical metals?

One needn't believe that gold has value "in and of itself" to invest in it, just that it often retains a relatively stable value even during economically turbulent times, which is generally true, as far as I know.

The value that people place on it is indeed disproportionate to its actual usefulness, but market value often has little relation to any narrow sense of "usefulness."

[Ryan Rudolph]

Philosophaster,

One needn't believe that gold has value "in and of itself" to invest in it, just that it often retains a relatively stable value even during economically turbulent times, which is generally true, as far as I know

.

I disagree though, if the reasons why the masses believe something is valuable aren’t sound than it isn’t a wise idea to put money in that thing, because if humanity collectively started to wake up in the next hundred years, and you owned a bunch of gold bonds, then guess what? They would be worthless.

The value that people place on it is indeed disproportionate to its actual usefulness, but market value often has little relation to any narrow sense of "usefulness."

It should be noted though that some of the most successful companies on the stock market do so well because of how ‘useful’ their products are. Also, they have products or services that are higher quality than the rest. One could suggest that having the highest quality service or product is being the most useful. It is very utilitarian to perfect a product or service, and companies that do this the best usually make the most money. Eventually, in the future, the manufacturing of the best products will probably be automated by machines. However, human ingenuity still has its place to alter the behavior of those machines. Moreover, if Intel, Google and Microsoft weren’t leaders in their fields, they wouldn’t be as useful, meaning if their products were shabby, then people wouldn’t benefit from them to the same degree.

For instance: Without Companies such as Google, Intel and Microsoft being leaders in their industry, intellectual communities such as GeniusForums might not have right casual conditions to come into existence. That is being very useful.

But you have a point, market value doesn't usually reflect true usefulness. For instance: if humanity was wise, then companies such as MacDonalds, Coca Cola, Pepsi, alcohol companies and tabacco companies would probably go out of business, and their stock price would fall to zero. However, presently, investors continue to buy their stock believing that their products are 'useful'

[brad walker]

Brokenhead, Worldly Matters has definitely returned from vacation. Admins, perhaps you should unlock its house so it doesn't need to couchsurf at its neighbor, GENIUS FORUM?

[Ryan Rudolph]

Brad,

This post is based on analyzing irrational behavior - particularly man's desire to buy gold stocks when the environment is more hostile to his survival. And I was inquiring into the possible motivations of the behavior itself, while comparing the impulse to other feminine behavior.

Anything that is psychologically critical in nature seems to have GF potential. Not much difference from the cell phone thread. Both examine the ways in which humanity behaves compulsively.

[Philosophaster]

I disagree though, if the reasons why the masses believe something is valuable aren’t sound than it isn’t a wise idea to put money in that thing, because if humanity collectively started to wake up in the next hundred years, and you owned a bunch of gold bonds, then guess what? They would be worthless.

Sure, but how likely is it that the bold part will happen? :-P

[Nick]

If betting on gold is directly related to betting on humanity remaining irrational through out my life time, hell, I'll take that bet anytime.

[Dan Rowden]

Here you go, Ryan, you seem to care about this sort of thing: The Rise and Fall of the Gold Basis

[Ryan Rudolph]

Dan, I’ll have to read through that article in more depth, but it caused me to remember a few questions I had about man’s psychology. I was questioning if Gold is universally seen by men as a symbol of value, and why? It seems like a very ingrained response in men that gold is valuable. Even minimalist economists that should know better fail the gold test. So there must be some deep psychological urge for men to believe gold is valuable. I also seen this psychological tendency in my Geology classes, and I never questioned it. I just assumed gold was valuable because I assumed there must be some good reasons for assigning it universal value. Even my Geology professors seemed to naturally assume gold’s superior value over other metals. And it is interesting to me that gold has been used by many of the greatest civilizations throughout the ages as their monetary symbol of currency/value.

I wonder why this is? Is it as simple as suggesting that it only due to its scarcity, pretty appearance, and unique physical properties? Or is it a deeper impulse? Does man’s desire for gold represent his deep yearning for absolute freedom? Is gold man’s false symbolization of absolute freedom? Of absolute and lasting security and freedom? For instance: An ambitious man and a spiritual man are traveling in opposite directions, but both are motivated by the same discontent, the same desire for lasting security, psychological freedom and so on. Gold is a future promise to man. That promise is this – if you accumulate enough of it, you will be free. Free from needing to serve humanity with labor. It is no wonder then that religions and civilizations have created statues of their heroes and gods in solid gold.

[Dan Rowden]

Gold has interesting properties and is comparatively rare. If, economically, one requires a basis for currency, why not gold? It's gotta be something, doesn't it?

[Shahrazad]

We could use salt, as we did in Biblical times. Or, we could use $7k birkin bags, http://www.sovaleather.com/italy446rednubig.jpg which hold their value pretty well during economic recessions. It really doesn't matter.

Is Ryan still in the tender age where one feels the need to over-analyze everything? If so, please overlook my interruption.

[DHodges]

I wonder why this is? Is it as simple as suggesting that it only due to its scarcity, pretty appearance, and unique physical properties? Or is it a deeper impulse?

Is it fair to assume, Ryan, that you have never given a gold necklace to a woman?

Anyway, back when gold was directly traded as gold coins, there were also coins of silver and copper. Among other useful properties, one of the most useful properties of metal is as a store of value. Metals represent a certain amount of value, as it takes a certain amount of labor to extract them from the ground. If the metals did not have that (market) level of value, then no one would bother to do the mining.

Today, because of the uncertainties in purely financial instruments (stocks and bonds), there is capital flowing out of those markets and into commodities. Besides the metals, oil is particularly being targeted (as you may have noticed).

If you think gold trades at a higher price than is justified by its uses, you might consider other metals such as titanium, platinum and palladium.

[BMcGilly07]

In it's reflection, gold exaggerates and plagiarizes, it flatters, it is soft and malleable. Whereas ordinary silver merely reflects, hence its lesser value.

[Diebert van Rhijn]

Gold was the closest thing in nature to be found that showed similarity to the divine sun and sunlight - both worshiped 'beyond belief' in ancient times. Using this material, a piece of the divine, on yourself or in some ritualistic fashion surely enhanced someone's personal power. Solar charged!

All this caused the initial value placed on gold. As you see religion and money always are always connected intimately - dealing with capturing power after all.

[Alex Jacob]

Just now reading The Conquest of Peru. These men, in compete desperation, far from home, one step out of debtors prison in a Panamanian outpost, with no place to turn but forward, either to death or success, to plunder and conquest, all hankered after gold.

In the 'honesty' of their desperation their longing takes on a spiritual, a religious cast: solemn vows are pronounced, promises are made to God, Divine favor is invoked.

'In the name of the Prince of Peace, they ratified a contract of which plunder and bloodshed were the objects'

---Robertson, America

'The commanders, Pizarro and Almagro, made an oath, in the name of God and the Holy Evangelists, sacredly to keep this covenant, swearing it on the missal, on which they traced with their own hands the sacred emblem of the cross. To give still greater efficacy to the compact, Father Luque administered the sacrament to the parties, dividing the consecrated wafer into three portions, of which each one of them partook; while the by-standers, says an historian, were affected to tears by this spectacle of the solemn ceremonial with which these men voluntarily devoted themselves to a sacrifice that seems little short of insanity'.

---William Prescott, Conquest of Peru

[Philosophaster]

Metals represent a certain amount of value, as it takes a certain amount of labor to extract them from the ground. If the metals did not have that (market) level of value, then no one would bother to do the mining.

Heh, that's more than a bit circular...

"People have to labor to mine gold, so it has value. And if it didn't have value, nobody would mine it."

A good investment might actually be rare earth metals, many of them used to manufacture technology like LCD screens. Their prices keep climbing as they disappear into scrap heaps full of discarded electronics:

http://www.dailykos.com/story/2008/7/5/ ... 879/545268

Eventually we may start mining the scrap heaps themselves just to get the necessary metals back into circulation.

[Elizabeth Isabelle]

Metals represent a certain amount of value, as it takes a certain amount of labor to extract them from the ground. If the metals did not have that (market) level of value, then no one would bother to do the mining.

Heh, that's more than a bit circular...

"People have to labor to mine gold, so it has value. And if it didn't have value, nobody would mine it."

Not quite an accurate interpretation. Let's go back to basic logic:

M(v) = value of metal
L(v) = value of labor
mM(v) = market level of value of metal

What D said was M(v) + L(v) = mM(v)

What you said was L(v) therefore M(v) so if not M(v) then L(v)

Big difference.

edit math symbols for words in last equation

[Philosophaster]

David said: "Metals represent a certain amount of value, as it takes a certain amount of labor to extract them from the ground."

I took "as" to mean "because," i.e. metals have value because there are labor costs for getting them out of the ground. His post didn't mention any market value of metals apart from labor costs. Of course, they do have such value, and I'm sure he knows this, but his post taken on its own does not mention that, which is what I pointed out.

[Elizabeth Isabelle]

sorry philo - I sloppily read "as" as "and"

[Ryan Rudolph]

Dan,

Gold has interesting properties and is comparatively rare. If, economically, one requires a basis for currency, why not gold? It's gotta be something, doesn't it?

It does have to be something, but some things are better fit as a basis of currency. I’m beginning to suspect that perhaps another major reason as to why Gold has lasted as a universal currency is because it is so useless. At first, I thought to myself, a metal must also be useful to be considered valuable, but now that I think about it, uselessness is a necessary characteristic of a lasting symbol of currency.

For instance: If people used rice or wheat as currency, then during tough times they might eat it, or if they used copper or iron ore as currency, then when a war broke out, then the people would use it to make weapons. So because gold is a such a useless metal, perhaps it was given a natural advantage over some of the more useful alternatives.

Shahrazad,

Is Ryan still in the tender age where one feels the need to over-analyze everything?

So I suppose you have every part of the universe figured out then? Where’s your curiosity at old dog? I suppose we have to take you out into the woods with a shoot gun for one last hunting trip do we?

Dhodges,

Metals represent a certain amount of value, as it takes a certain amount of labor to extract them from the ground. If the metals did not have that (market) level of value, then no one would bother to do the mining.

Yes, but my point is that energy isn’t put into mining a metal unless it is pragmatically useful for society, but gold is the exception. It is very useless besides being used for jewelry and as a universal standard for currency.

BMcGilly,

In it's reflection, gold exaggerates and plagiarizes, it flatters, it is soft and malleable. Whereas ordinary silver merely reflects, hence its lesser value.

Gold is a lot like your typical trophy woman, both are very beautiful, and men have fought for control over both for centuries. Men have also felt very inadequate without the feeling that the possess both gold and beautiful women. And when you think about it, your trophy woman and gold are both useless. However, it is gold’s uselessness that makes it useful as a currency. Too bad we couldn’t say the same thing about trophy women. Their uselessness doesn’t actually make them useful for anything, besides a moral example of what to avoid I suppose.

Diebert,

Gold was the closest thing in nature to be found that showed similarity to the divine sun and sunlight - both worshiped 'beyond belief' in ancient times. Using this material, a piece of the divine, on yourself or in some ritualistic fashion surely enhanced someone's personal power. Solar charged!

All this caused the initial value placed on gold. As you see religion and money always are always connected intimately - dealing with capturing power after all.

provoking analysis. To add further, gold is notorious for being found as nuggets in river beds that intersect quartz veins, so many times, gold is born in the water, meaning it would have been discovered by humans in streams. So early humans would have assigned it great significance from being born out of the water, and resembling the son, i mean sun. It also takes on many 'perfect' characteristics, which we should go into:

1. It doesn’t react well with other elements, so it is found pure.
2. it’s color mimics the sun.
3. It isn’t easily destroyed, or modified by other elements, and therefore so it doesn’t change into anything else.
4. It is like Lao Tzu said, the soft force overcomes the hard force. Gold has one of the lowest hardness of any metal, and therefore very little energy is needed to mold it into something. However, it isn’t all that useful....

Actually, now that I think about it, A Diamond could be thought as Gold’s natural antithesis. Here is why.

1. Diamonds are rarely found pure because they tend to react with other elements as they solidify over thousands of years, thus containing impurities.
2. Their transparent nature mimics the water.
3. Unlike the commercials preach, Diamonds are not forever. There are merely Carbons atoms (old coal) that has been compressed by thousands of years of high temperature and pressures. Diamonds can degrade, change, and alter in time, if exposed to the elements under the right conditions.
4. Diamonds are one of the hardest minerals, and that is what makes them useful. They can cut through anything, and are often used in the industrial world for specialized drill bits.

Alex,

Just now reading The Conquest of Peru. These men, in compete desperation, far from home, one step out of debtors prison in a Panamanian outpost, with no place to turn but forward, either to death or success, to plunder and conquest, all hankered after gold.

Yes, fantasies of treasure would have served these men well to overcome lots of hardships, ill-health, and so on. Unrealistic Fantasy/Belief has served men as a pacifier during rough times. Just like a single man who works a job he hates, but fantasizes about scoring that nice girl who will make his existence worthwhile. Humanity loves dreams, and it moves from dream to dream, not realizing that the dream is an escape from being content with necessity, rather than emotional excessiveness.

Philosophaster,

. Eventually we may start mining the scrap heaps themselves just to get the necessary metals back into circulation

.

Yes, and China is really testing the limits on our natural resources. Way too many ant-like people, all concerned with status, and all yearning for a cell phone, a vehicle, and personal computer to be like America. It is an inevitable consequence of The Wal-marts and Toy R Us’s of the world creating a slave nation, who save all their money, and now we are paying the price, as a horde of materialistic ant-like Asians all crave to achieve middle-class status by buying up all the metal deposits left on the planet. Our only hope is if Nano-tech can be used create new compounds that have properties like metals, but aren’t metals themselves, meaning perhaps the properties of metals can be engineered with technology, simply by arranging atoms into unique configurations.

And I'm being optimistic here because if technology cannot solve the problem of diminishing natural resources, then world wide competition between nations could result in frequent wars, more so than currently.

[DHodges]

Metals represent a certain amount of value, as it takes a certain amount of labor to extract them from the ground. If the metals did not have that (market) level of value, then no one would bother to do the mining.

Heh, that's more than a bit circular...

"People have to labor to mine gold, so it has value. And if it didn't have value, nobody would mine it."

Okay, that was poorly worded; it sounded like Marx's labor theory of value, which is not what I meant.
Gold trades at some price in the market. If that price is not high enough to justify the effort needed to go mine it, then no one will bother to go mine it.

There are of course cases where the market price of something can be severly out of line with the actual utility.

However, market price is set by perceived utility - i.e., what someone is willing to pay for it. Perceived utility is - somewhat circularly - dependant on the market price. When something is expensive, there is usually the expectation that you can trade it for some other good (or cash). The ability to trade it for some other good is part of the utility of that object.

The obvious example is paper money, which has very little value apart from its ability to be traded for other things. And that value changes over time (e.g., inflation).

Actually, now that I think about it, A Diamond could be thought as Gold’s natural antithesis. Here is why.

I find it very odd that you recognize the utility of diamonds, but not gold. They both have industrial uses, and they both are used for decorative purposes.

[Leyla Shen]

Heh, that's more than a bit circular...

"People have to labor to mine gold, so it has value. And if it didn't have value, nobody would mine it."

Okay, that was poorly worded; it sounded like Marx's labor theory of value, which is not what I meant.

Marxian economics in one sentence? Wow. Strangely, that doesn't sound anything like Marxian economics, to me.

Gold trades at some price in the market. If that price is not high enough to justify the effort needed to go mine it, then no one will bother to go mine it.

If you ignore the significance of historical events such as the Eureka Stockade and present examples such as "outsourcing" to Pakistan (IT and telemarketing are quite the fashion, nowadays), sure, you can reduce the whole thing to "utility." Those local "nobodies," what do you suppose they do instead?

[Ryan Rudolph]

Dhodges,

I find it very odd that you recognize the utility of diamonds, but not gold. They both have industrial uses, and they both are used for decorative purposes.

What industrial uses does gold have?

[Tomas]

Dhodges,

I find it very odd that you recognize the utility of diamonds, but not gold. They both have industrial uses, and they both are used for decorative purposes.

What industrial uses does gold have?

Jeez, Ryan, sometimes I wonder about you...

For instance..

Electrical wiring...

medicinal as a pure colloid

Here:
Uses of Gold in Industry, Medicine, Computers, Electronics...

http://geology.com/minerals/gold/uses-of-gold.shtml


.

[Ryan Rudolph]

I had no idea gold had that many industrial uses. However, parts of my analysis probably still hold some truth because most of the electronic uses are very recent. And so perhaps gold might have made a good currency over others because it wouldn't have had that many uses prior to the industrial revolution.

So perhaps the present price of gold in the markets does not reflect a pathology in the human psyche because gold is in demand for other manufacturing uses besides jewelery and currency.