Gold: To own or not to own...that is the question.There is such a proliferation of propaganda at both extremes of the gold debate, that I thought it would be somewhat refreshing to attempt a rational and unbiasedappraisal of the situation. I say 'attempt', as one could quite reasonably assert that as a human I am inherently irrational, and as an investor in Endeavour Mining (a highly-leveraged play on the price of gold) I am inherently biased. Be that as it may, suspend your criticism for now, and allow me to strive towards this end. Lest I fall short of these intentions, know only that I aim not to distort, manipulate or misinform by design; to influence, yes, but only insofar as a voice of reason may temper the polarisation of extremism, as to my mind, there appears to exist an alarming lack of rationality, and such a high degree of bias, in so much of the commentary we see on this subject. The misguided hype of the blindly faithful (at either end of the spectrum), the lies of the self-serving, and the number of people readily willing to accept and conform to these views never ceases to amaze me; yet another sad indictment of our shortcomings as human beings, and our inability to moderate our perception, or think for ourselves.
I am sure that we are all familiar with the theory of the "Central Economic Problem": "It asserts that there is scarcity, or that the finite resources available are insufficient to satisfy all human wants and needs."
This concept is inextricably linked to the market forces of supply and demand, capital allocation, and price determination.
As a race, we humans have strived ceaselessly to increase our standard of living. This drive, above and beyond instinctive self-preservation and subsistence, is a primordial facet of human genetic make-up, and central to our success as a species. Its existence is principally a result of the evolutionary process of natural selection in the traditional sense, that is, survival of the fittest, which when applied to cognisant beings such as ourselves within our current temporal context of social and cultural development, translates to survival of the most intelligent, successful, and well-prepared. This behavioural trait stems from the self-awareness of consciousness, that is, our ability to transcend the present and not just to subsist, but to plan for the future; to pursue the creation of 'wealth', that is: material above and beyond our current needs in anticipation of future requirements. In a world without scarcity, would consciousness as we know it ever have become widespread? What would have been its advantage over 'un-consciousness' in a world of infinite abundance? It may even have been a relative encumbrance in existential terms when pitted against raw instinct. It is scarcity which drives ingenuity, forward-thinking and productivity. In a world of infinite abundance, in which all imaginable resources are readily available in inexhaustible quantities without the expense of any time, effort or other material, everything would be 'free'. Real assets would still have utility, but they would ultimately have no comparable value as defined by quantification for the purposes of interchangeability/transfer of value. Take for example the case of our bodies' real, immediate, and ever-present need for oxygen for the purposes of performing respiration; a substance for which we currently have no suitable alternative or substitute. Despite the mortal severity of this requirement, the extremely high utility we derive from this life-sustaining element, being a commodity which we literally cannot do without for more than a few minutes at most, its universal abundance in the atmosphere of this planet makes it of very little value in most earthly contexts. However, control its freedom of circulation or otherwise restrict its supply, alter or impose limitations on its fundamental supply characteristics, and we see immediately that it would become a commodity of the utmost value - indispensable to all at any price.
Consider sunlight, pure life-sustaining energy.
Water, another obvious yet somewhat more complex example as although more than equally abundant in volumetric terms (than 'air'), it suffers from a less uniform global distribution, that is to say that there are manifest localised supply-demand imbalances. Although 71% of the earth's surface is covered in ocean, so that the supply of contaminated water (brine) in coastal areas could be seen to be more or less unlimited, water in this form is of limited utility to sustain land-dwelling human/animal or plant life. but
Land
Salt
Ownership/possession
The challenge of scarcity is what has given rise to the need to store value, enabling surplus productivity in the present to be stored and exchanged for 'scarce' goods or services in the future, whether required or simply desired. The exchange of a given quantity of goods or services for a corresponding equivalent valueof other goods or services, as measured by a compromise in agreement of their perceived relative value to the parties involved in the exchange, a function of their marginal utility, rarity, local availability, cost of production (as measured by input costs, parts and labour), replacement value, are the foundations of the barter system of exchange. The barter system had many limitations, most notably the determination of value and its relative assignation to specific ephemeral items (quality is difficult to quantify and largely subjective in its nature, especially within a heterogeneous context), impossibility of subdivision of certain unitary items without impairment of their intrinsic value or utility, coincidence of intersection of demand-supply imbalances, and ultimately the limited ability to mutually satisfy the specific individual needs and meet both parties' actual requirements without resorting to a series of transactional exchanges, essentially it suffers from a lack of standardisation. We expect that the volatility of expected returns in value realisation associated with such a system are high. Participants, on the whole, would do well to diversify themselves from a one-product economy/trading entity, giving themselves the flexibility to offer a range of potential goods or services so as to benefit from increased probability of above-average demand for any single instrument. Ideally the instrument of exchange should have the highest utility gradient, to ensure maximum value realisation via crystallization into another tangible form. We come back to the portfolio concept of saving, or investment.
Nobody NEEDS gold in the same way that they need air.
It is somewhat contradictory that whilst homogeneity improves a material's/object's/concept's viability as a medium of exchange by its fungibility,uniformity, and standardisation, its worth is limited in this respect by its very nature; its lack of individuality, the threat of replication, and over-replication with the benefits of improved processes, cost-reduction, including technological advancement.
Ice
Aluminium
However, we see that the differentiation in cultural, socio-demographic, and localised environmental threats, make global trade (and a global medium of exchange) the only viable option, yet there will always be a globalised perception of value beyond pure fiat wealth, that which is quantified by possessions, their rarity, utility and replacement value.
Gold has practically zero utility (except as jewellery, and perhaps as a speculative investment or store of value), although one can also lease it (at the prevailing finance rate) should one wish to diminish the risk associated with holding this ZERO utility asset, this aside, it measures up quite well in the rarity and replacement value stakes, as well as being far more portable than your family home, and far more uniform in nature.
https://www.financialsense.com/contributors/erik-townsend/debunking-the-precious-metals-fear-mongering-campaign