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Ask Dave

Why Gold Doesn't Have Intrinsic Value

Dave asks Dave to explain how gold and other precious metals don't have intrinsic value. Dave gives Dave his position on these types of investments.

QUESTION: Dave in Springfield asks Dave to explain how gold and other precious metals don’t have intrinsic value. Dave gives Dave his position on these types of investments.

ANSWER: The statement of intrinsic value means that people seem to think that somehow gold is mythical in that it is automatically always accepted as an exchange method. People say something like “the gold standard.” That refers to several things, but I’m just saying in the sense of if things go bad, gold will always work to be exchanged for things. That is not true, so that’s not intrinsic value.

Certainly, you can melt gold down and it has some utilitarian value. Silver has gone up because it’s being used a lot in microchips and those kinds of things, so it’s got a utilitarian value that way—a use value. Gold is no more valuable than someone else’s willingness to accept it in exchange for something. It’s what my friend Rabbi Lapin, who wrote the book Thou Shall Prosper, says that money in that sense is spiritual—not in the sense that it’s a religious spiritual thing, but it’s spiritual in that if I’m willing to accept beads in exchange for food or beads in exchange for a place to sleep, then that might have been the case with Columbus. In other cases, people might be willing to accept rocks in exchange for something else. Some people might exchange paper that has a certain color to it. The only reason we’re willing to exchange that is because we think that someone else will later exchange it for something else. The paper itself does not have value. It’s just green paper. The gold rock does not have value. It’s just a gold rock. The only value that anything has is to the extent that someone else would pay for it, in terms of a medium of exchange to operate an economy on.

The problem with the gold issue right now is that people are assigning a mythology to it in the event of a crashed economy. The pricing has been based more on fear than on a “logical marketplace.” For instance, if you’re buying and selling a stock, at least you can do mathematics around that and look at the price-earnings ratios. You can look at the assets the company owns in today’s market—a book valuation on the company. Divide that into the actual outstanding shares. You can do some actual mathematical calculations to ascertain that it has a value. With a commodity of any kind, it’s what the market will bear.

I would want to have something that has more use in the marketplace and has a much broader stand and tests across the test of time if I were worried about an economy collapsing. An example would be real estate. I’m huge on real estate. I love real estate. I don’t want to pay too much for it. I don’t want to assign crazy values to it. There’s a marketplace for that. You can do appraisals and comparable values to determine what it’s worth. At least with a house, for instance, someone’s going to need a place to live potentially.