[Vision2020] 7-25-2011: Gold hits fresh record high at $1, 623.49/oz overnight

[lfalen]

I tend to agree with you, although I am a neophyte as far as the markets are concerned. Except for the hype, I do not see where gold is any different than any other commodity.
Roger
-----Original message-----
From: Andreas Schou ophite at gmail.com
Date: Tue, 26 Jul 2011 13:56:56 -0700
To: Ted Moffett starbliss at gmail.com
Subject: Re: [Vision2020] 7-25-2011: Gold hits fresh record high at $1,623.49/oz overnight

> Ted --
> 
> It's still not wise. There are a lot of people who will tell you that
> gold is a commodity of "intrinsic worth," which will retain its value
> even when the value of fiat currencies depreciate. That's not the
> case. But this widespread belief about the value of gold has led to
> its somewhat unusual pricing structure. Think about it this way:
> 
> Because people believe that gold has "intrinsic worth," the price of
> gold as a commodity is essentially the sum of hedge positions against
> fiat currencies worldwide. When people are concerned about the value
> of fiat currencies, the value of gold goes up. When people are less
> concerned, the value of gold goes down. In that framework, then,
> purchasing gold is essentially just a hedge against fiat currencies.
> 
> The problem is that the underlying belief leading people to purchase
> gold is false: it does not have intrinsic worth. Consequently, the
> value of gold is largely determined by people with a mistaken belief
> about what they're buying, and people who believe that others will
> mistakenly hold that belief. If you think the dollar will drop in
> value (and I don't think this will be the case, unfortunately),
> short-sell dollars rather than buying gold. Or buy something boring,
> like pork bellies or molybdenum.
> 
> Instead of being in a market where the price is determined by a herd
> of panicked, mattress-stuffing idiots, you'll be in a market full of
> people who, wisely or unwisely, are trading on the market value of the
> good itself rather than their subjective beliefs w/r/t other peoples'
> subjective beliefs.
> 
> -- ACS
> 
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