Another blogger makes the claim that gold has no intrinsic value and gives his post the title, “All That Glitters Is Not Gold“. So I responded:
Gold has great intrinsic value, especially when you compare it things like dollar bills which are printed on paper. So here’s a question. If gold has no intrinsic value, then why don’t we print (i.e., mint) the US dollar on gold instead of paper?
The Righteous Investor 
Gold was once used in coins, lets not forget this. These coins were eliminated due to Nixon’s Executive Order. Ever since, the gold standard has basically been absent in America. They’re not going to start using gold in currency again because of the paper lobbyists and their pull in Washington
Yes. See my comment below.
This is the continuation of the dialogue with Valuevestor:
Andre DesRoches said…
Hi Peter,
We don’t print dollars on gold because it weighs too much, LOL 🙂
My point about gold is that it’s a commodity, which historically has been priced at a small premium to it’s marginal cost of production – except for a few periods of irrational pricing. So gold does have some “value”, but with producers mining gold at $400/oz, I’d argue that gold’s “true or intrinsic” value is no where near current prices.
January 7, 2011 5:47 PM
Peter W. Dunn said…
It’s not weight that stops minted gold coins from being used to represent dollars–its meltdown value. Take for instance the US copper penny minted between 1909-1982. The value of the copper is 2.8 cents. If even a copper coin is worth more than the face value, you can’t afford to mint money on precious metals like gold and silver–because this will not allow central banks to devalue their currencies.
Your assumption that gold has no intrinsic value is incorrect–now even by your own admission. You should have said, Gold is worth no more than the $400 per ounce that it costs to mine it. But even that is wrong. Gold has the intrinsic value, if measured in dollars, of its market price on a given day. If the market price goes down, it has less–against the dollar. But the fluctuation of the gold price is not related to the value of gold which historically remains relatively stable, but to the high volatility of the value of the dollar. For as long as the supply of US currency continues to increase, while Bernanke monetizes debt and eases quantitatively, and interest rates remain low, I don’t see how gold is going to come down from its secular bull. When debts are monetized and governments try to dig out of fiscal nightmares through quantitative easing, people begin to remember that gold and silver are real money–not symbolic, but highly sought and valuable with true intrinsic value. When the current US dollar and all other paper currencies cease to exist, gold will still be money.
January 7, 2011 8:20 PM