Clearly the main focus of discussion of gold is on its extrinsic value - the value placed on it by investors and others who prize it as a store for wealth. However, it's conceivable that society could one day be in a state where gold is no longer considered valuable for those reasons. What intrinsic value does gold have, or to put it another way, what uses does it have in the sense of being a material commodity as opposed to an investment opportunity?
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The answer is that other than a small number of applications (the approx. 10% of gold production that goes to 'industrial uses') gold does not have intrinsic value beyond being pretty and rare (and useful for making jewelry.) There are a number of 'industrial' applications and uses for gold (see other answers for a list) but the volume consumed this way is fairly small, especially relative to the capacity to mine new gold and reclaim existing gold. If you removed investment, and jewelry usage (especially culturally driven jewelry usage) then there's no way the remaining uses for industry and dentistry could sustain the price levels we currently see for gold.
Furthermore, and perhaps more importantly, the best data I can find for this shows the total number of tons consumed for industrial uses has been shrinking for several years now, and that was prior to recent price increases, so it is difficult to tie that reduced demand to increasing prices. And one might postulate in a 'collapsed society' you seem to be referring to in your question, that a lot of the recent industrial demand (e.g. the '50 cents of gold in each cellphone') could quite possibly disappear entirely.
The argument many people use for gold having value is usually 'been used as money for thousands of years'. But this confuses gold having a value of its own with the reasons why something makes a useful currency. Gold has a large number of characteristics that make it an ideal currency, and of all the elements available it is perhaps the best physical element to serve as a currency.
- it isn't a gas or liquid
- it doesn't burn
- it's non-reactive
- it doesn't have an absurdly high melting point (as with platinum)
- it's rare but not TOO rare (like rhodium)
- it won't kill you (as with a radioactive metal)
- it doesn't corrode or tarnish
- it's relatively easy to test with a 'touchstone' and 'the acid test'
- it's easy to divide, or 'mint' in various sizes (an issue with gems, diamonds etc) recall 'pieces of eight'
BUT just as with a dollar bill, just because it is a good currency, does NOT give it an intrinsic value. Any currency is only worth what someone will trade you for it. The value is set by the economy etc., not the medium used as a currency. So yes, people will probably always use gold as money, but that doesn't make the money worth anything, it's just a medium of exchange.
Incidentally two other things should be noted. The first is that you have a problem when the medium itself used for a currency becomes worth more than the face value. Hence why we stopped using silver in coins, and there were concerns over pennies due to the price of copper.
This leads to the second point, which is that currently, gold is TOO RARE to suffice as a world currency, hence why all countries went off the gold standard years ago. The size of national and global economies was growing faster than the supply of gold, and hence it was becoming impossible to have enough gold to back all the currencies (inflation concerns aside).
gkrogers
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Chuck van der Linden
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So basically everybody is making a pretty big assumption that they're always going to find someone to trade it with at a less volatile price than other commodities. – Lorenzo Aug 20 '11 at 11:51
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BUT just as with a dollar bill, just because it is a good currency, does NOT give it an intrinsic value.Wrong. Absolutely, wrong. It's intrinsic valuation is based on that 10% found in industrial applications. The rest of it's valuation has to do with its use in currency and shiny baubles. There it comes down to what someone else will pay for it. I agree with that point. However, it does have uses beside currency and jewelry. Put another way: if it could not be used in currency or jewelry, but it still had its industrial uses, would it have no value? – George Marian Aug 20 '11 at 21:05 -
If gold were cheap and abundant, I suspect it would be used for many more industrial applications than it is now, much like how most of the world's diamonds go for industrial rather than jewelry use. – jprete Aug 20 '11 at 22:00
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1Ok George, I'll grant you there is SOME intrinsic value, but if those uses are only using about 10% of gold produced each year, then the overall affect on the price can't be that substantial. And there are substitutes for several of those applications, crowns can be made from ceramics, copper is almost as good of a conductor of heat, etc. – Chuck van der Linden Aug 22 '11 at 20:57
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@Chuck: We have no way to know the effect of industrial/scientific gold on the price, because we don't know the associated demand curve. All we know is that gold's near-term historic price and availability is such that industry does not want to use more than 10% of it. – jprete Aug 22 '11 at 21:41
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Gold prices were a fraction of current levels only 10 years ago, and we didn't see increased industrial use of gold at that time. And if as you are arguing, that industrial demand is price sensitive and highly elastic, then it is not capable of setting a very high value for gold. However the best numbers I can find (from USGS) only run to 2003, show a dramatic decrease in the consumption of gold for industrial uses, that exactly coincides with one of the lowest prices we've seen (around 2000) (http://minerals.usgs.gov/ds/2005/140/gold-use.pdf) The exact reverse of what your argument predicts – Chuck van der Linden Aug 23 '11 at 07:11
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@George Marian, You also completely missed my point, I'm saying that the fact gold makes a good currency, and can act as a currency, THAT (being a currency) does not give it an intrinsic value.. I'm not saying it does not have one, but that it doesn't get one from being a currency. I agree that dental+industrial can give it an intrinsic value, but I feel that number is very low, especially given the small amount consumed for such things relative to what is produced. – Chuck van der Linden Aug 26 '11 at 19:18
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Regardless of how low the intrinsic value of gold may be, the question asked what intrinsic value it has. A discussion regarding its use as a currency is a distraction, when that was already set aside in the question itself. Now, what the OP would really like to know is
if gold will still have a value in a scenario where everybody is starved, people fight for food and water and paper money has become worthless.However, that is not really a question that can be answered, unless such a situation occurs. But, one can draw their own conclusions once they perform the analysis. – George Marian Aug 26 '11 at 20:33 -
Even dollar bills have some intrinsic value. They are made of mostly linen and cotton. Those materials are of limited use in the form of a bill and there are limited uses for such short fibers or there would have to be a serious need for those materials for anyone to attempt to reconstitute longer, more useful, fibers out of the bills. However, the point is that there is some intrinsic value. How much that value is worth to someone depends on the particulars of the situation they face. The more desperate the situation, the more creative we can be with making use of available resources. – George Marian Aug 26 '11 at 20:39
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If your issue is that you feel the 'value as a currency' is a distraction well fine, I wish you'd have said that in the first place. OTOH in the collapsed society paradigm being postulated, we could see 'industry' largely collapse and thus industrial demand for gold along with it. In that situation gold's greatest value might be simply as a medium of currency. 'Everything has a value' is semantic since there are values so low that most people consider them valueless. Lastly please note the first sentence of the answer which does address the industrial demand, such as it is, for gold. – Chuck van der Linden Aug 26 '11 at 22:03
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1Chuck, @George: The phrasing "non-monetary" in the question edit was intended to remove gold's use as money from consideration, since this seemed to be part of the question's duplicate and not-a-real-question problems. I was very surprised when the OP bountied the question and selected a monetary answer, in contradiction to my apparently successful edit that "read his mind". It was clear at that point that his real question, though off-topic, had not changed. – jprete Aug 31 '11 at 14:27
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Borrowing Wikipedia for a bit, it seems like the intrinsic uses are these. I've ordered these approximately in technology-level order:
- Decorative uses as jewelry, gold foil on metal objects, solid gold objects, gold thread, and the like
- Gold crowns
- Heat dissipation material
- As a toner in photography
- De-icing conductor for aircraft
- Corrosion-resistant or high-energy electrical conductors and contacts
- Certain high-tech medical applications for scanning electron microscopes and antigen detection
- Reflection of EM radiation for military, space, and other high-tech applications
The importance of any of these uses largely depends on the state of a civilization and the level of technology of that civilization. However, most of these applications have far cheaper substitutes available.
jprete
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1But is the desirability of gold for decorative purposes not driven by social prestige derived from its extrinsic value? :) – Affe Aug 18 '11 at 02:14
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2@Affe: No, actually. What did that is the fact that it's really shiny, pleasant to look at, extremely workable by goldsmiths, and never rusts, corrodes, or tarnishes. I'm no historian, but I'd think that those factors plus the rarity eventually snowballed to give it its extrinsic value. – jprete Aug 18 '11 at 02:21
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1Historical truth surely. I was just pondering to myself if it would be possible to research and quantitatively identify value attributed to properties of the material vs social prestige. At some point a shift occurred, since 'real gold' still commands premium above modern alternatives that meet the needs of the product. – Affe Aug 18 '11 at 20:12
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Well don't forget that in a few cultures, such as India gold is very much a symbol of wealth and prestige. A bride's dowry is one example. That leads to things like one single country (India) consuming more than 1/3 of the total global gold production, despite having a GNP that ranks nowhere near that high in comparison to other countries with far lower gold consumption. (It might be interesting to graph the GNP growth of India, compared to it's consumption of gold, and the price of gold, I wonder how much those three would parallel? – Chuck van der Linden Aug 22 '11 at 21:01
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This site shows a list of (mostly) industrial uses of gold:
http://geology.com/minerals/gold/uses-of-gold.shtml
If you ignore the first two uses, jewelry and coinage, there remains aerospace, computers, electronics, dentistry and medicine.
It's worth noting that gold comes in the same chemical family as both copper and silver, meaning that gold can serve most of their uses, although not as well.
Tom Au
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Extrinsic value is not a factor with respect to gold.
Intrinsic value by definition is the natural value of a commodity set by the market -- extrinsic value is externally set. The "extrinsic" value of gold in the United States is $50/oz. If the market value of gold fell below $50/oz, a US American Eagle coin would be worth $50 in the US.
If you take away the attributes that make a commodity valuable, the value drops.
Substitutes of equal or better quality for most industrial or other uses of gold exist, so if if the popularity of gold declines, or if the hoarders of gold have to liquidate, it's value will diminish. I have no idea what that value would be, but it would set by the market demand for gold jewelry and other valuable industrial uses.
duffbeer703
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Gold has no "intrinsic" value. None whatsoever.
This is because "value" is a subjective term. "Intrinsic value" makes just as much sense as a "cat dog" animal. "Dog" and "cat" are referring to two mutually exclusive animals, therefore a "cat dog" is a nonsensical term.
"The actual value of a company or an asset based on an underlying perception of its true value ..."
Intrinsic value is perceived, which means it is worth whatever you, or a group of people, think it is. Intrinsic value has nothing, I repeat, absolutely nothing, to do with anything that exists in reality.
The most obvious example of this is the purchase of a copy-right. You are assigning an intrinsic value to a copy-right by purchasing it. However, when you purchase a copy-right you are not buying ink on a page, you are purchasing an idea. Someone's imaginings that, for all intensive purposes, doesn't even exist in reality! By definition, things that do not exist do not have "intrinsic" properties - because things that don't exist, don't have any natural properties at all.
"Intrinsic" according to Websters Dictionary:
"Belonging to the essential nature or constitution of a thing ... (the intrinsic brightness of a star)."
An intrinsic property of an object is something we know that exists because it is a natural property of that object. Suns emit light, we know this because we can measure the light coming from it. It is not subjective.
"Intrinsic Value" is the OPPOSITE of "Intrinsic"
Aaron Klap
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1I suggest blockquote formatting when quoting, or "quoted italics" when the text isn't lengthy enough to warrant a blockquote. I also notice you're mostly using HTML in your answers. You might be interested in the advanced editing help and trying Markdown. Easy to use. Consider an example formatted result here vs. its source. I grok HTML, but all the angle brackets make my eyes bleed when I'm just trying to write. – Chris W. Rea Feb 11 '14 at 02:05
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This was answered wonderfully in a recent Planet Money podcast: Why Gold?. Here are some higlights of gold:
- Not a gas.
- Doesn't corrode or burst into flames
- Doesn't kill you.
- Relatively rare (but not too rare)
If listening to podcasts isn't your thing, read this summary.
Pete
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1You cannot, however, shoot werewolves with it. But they are good reasons to want to work with it. – gef05 Aug 19 '11 at 00:59
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Are these reasons why gold is useful as a commodity, or reasons why gold is useful for monetary exchange? – jprete Aug 19 '11 at 02:27
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Listened to the whole podcast, but it's not really answering the question if gold will still have a value in a scenario where everybody is starved, people fight for food and water and paper money has become worthless. – Lorenzo Aug 19 '11 at 12:38
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2@L.DeLeo I fear that particular question is impossible, or extremely difficult, to answer in a satisfactory fashion. You can look to The Great Depression for some idea of an answer. However, that does not really approach the doomsday scenario you describe. – George Marian Aug 19 '11 at 22:18
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4@L. De Leo - That isn't a question with a correct answer. Even in a Mad Max scenario, soldiers and merchants still need to be paid. In the absence of a government with functioning institutions, commodities like gold are likely candidates as money. Does it have to be gold? No. The Iroquois indians built a confederacy in present-day New York with a robust trade economy. The currency? Belts with decorative patterns made from seashells called wampum. – duffbeer703 Aug 20 '11 at 02:46
if gold will still have a value in a scenario where everybody is starved, people fight for food and water and paper money has become worthless.I feel used and now I wish I had not put any effort into reopening the question. – George Marian Aug 20 '11 at 20:51