Korean Job Discussion Forums

[MoneyMike]

Hey guys, I've got a question about the value of gold and silver. In recent topics on this forum, I've seen a few people post the opinion that gold and silver are good investments because they will provide a tangible asset to trade should currencies crash.

Isn't the value we assign to gold and silver just as arbitrary as the value assigned to a 10,000 won bill though? What is it that supposedly gives these metals their value? As far as I understand, they're not good for any practical uses.

And in what kind of scenario do you envision a stash of physical gold or silver will be useful? Are you thinking like end of the world, collapse of society type situation where people are starving to death in the streets? Or a less severe crisis, maybe a really bad depression?

I'm just curious what the gold and silver crews thoughts are on this. It's not something I know much about.

[recessiontime]

It's not so much that the precious metals have inherit value or practical use like you said (even though gold and silver do have applications) it's the fact that paper money is becoming increasingly worthless because there is more of it. There is lots of paper money and very little in silver in gold in comparison.

[MoneyMike]

But scarcity alone can't equal value. There has to be demand for a scarce commodity to become valuable. And sure, there is demand at the moment, but in the event of some kind of catastrophe, couldn't we expect that demand to fall off a cliff while people focus on their needs?

I'm not so much curious as to why gold and silver have value now, but more about why people think it will retain its value after some kind of terrible event, like a currency crash.

[Lazio]

[harryh]

I've been buying physical gold and silver since the Lehman Brothers went belly up. I also felt more bullish on silver since it has more industrial uses than gold and is a poor man's hedge aganist inflation and the real threat of paper being being next to worthless, those govts have printed so much money, it has to devalue. Germany printed money off money to start to pay back its financial obligations after Versaille. Look what happened there. Even Zimbabwe in recent years printed off a lot of money, look what has happened there.

http://www.youtube.com/watch?v=I-Mq6zuHiJ8

http://www.youtube.com/watch?v=owMsb2akt78

http://www.youtube.com/watch?v=-IiarVvZguY&feature=pyv&ad=8237580340&kw=gold

http://www.youtube.com/watch?v=Gl47z2g2EvI
http://www.youtube.com/watch?v=uPg4qTNTP-E&feature=related
http://www.youtube.com/watch?v=AId_UiPtPpQ&feature=fvwrel
http://www.youtube.com/watch?v=h66R4U-Eybs&feature=related
http://www.youtube.com/watch?v=fzyXn8t0plM&feature=related

'Over the past three years, the United States has added $5 trillion to our national debt, bringing the total to $14.3 trillion. With nearly 42 cents of every dollar spent by the federal government being financed, we are borrowing trillions each year to feed our spending addiction. Perhaps the most sobering fact is that after July 27, every cent the government spends through the rest of the year will be borrowed.'

http://www.phillyburbs.com/news/local/courier_times_news/opinion/guest/government-must-cut-spending-then-get-out-of-the-way/article_012207ad-db0d-5909-a247-6813f481ed13.html

Throw in the fact that China was once an exporter of silver, they are now an importer.

Supply and demand, and also I still think commodities are in an historical bull run, which should continue until close to the end of this decade with a few bumps along the way (nothing goes up in a straight line).

As I've said, I've been buying gold and silver since 2008 and will continue to do so I envisage. Just last week, I bought another silver CFD at $4218.

[RMNC]

One of my best friends is a precious metals wholesaler who deals in Gold and Platinum futures.

The reason that gold and silver are such safe investments is because unlike cash money, it's difficult to find, hard to dig up and expensive to process and refine. With gold it has a natural expense to it, unlike paper money which is cheap and easy to print.

That's why gold doesn't go up or down nearly as drastically in hard times and is considered a safe investment. Sure, there are other things that are rare and hard to dig up, but gold and silver are good because they can be easily minted into coins and split up, that's why most ancient societies used them.

The reason that gold will still retain value in the event of a crash is because gold is seen as a sort of proto-money, like a pre-paper money form of currency that is generally accepted by everyone. It still has some of the stigma that paper/fiat money has as being just another object with no literal value, but it also has the difficulty factor to fall back on. In a bad economy such as today, the price of gold goes up because people start to worry that the economy will tank and their paper money will be worth less, but gold will retain some aspect of perceived value.

So yeah, supply and demand, but with more focus on the supply part that the demand part. Gold is a tactile, real substance that costs almost as much as it's worth to produce, whereas cash money is very cheap to make and is thus more volatile without anything backing it.

Personally I would invest in gold for about 1 or 2 more years and then dump it. The economy will pick up sometime soon-ish, and you wouldn't wanna buy and hold onto it for long, because once the economy goes up, gold and silver will drop like flies and you'll have to wait another 30 years for it to hit these same heights.

[Nester Noodlemon]

Water will be in high demand in the future. It's the new gold/silver. That's why, every day, on my way home, I try to pick up a couple of empty soju bottles or old plastic juice bottles. Then, I fill them with regular ole tap water. I have roughly around 1100 containers of this investment stashed away. At a conservative, estimated future-value of 70,000 won per container, things are looking good.

[banjois]

[Poker]

[ChrisLamp]

facepalm.

[MoneyMike]

Thanks for the reply RMNC, that made the most sense to me.

And Lazio, I hardly think it's a stupid question to ask where the demand will come from for a luxury item in bad financial times.

[RMNC]

Funny story - my friend, the same one as before, had a woman come into his store trying to sell some silver, and when she found out it was $45 an ounce, she ran outside and puked in the bushes. Apparently around 2 years ago (when silver was %15 an ounce) she sold a bar of it for something like $1500. When she found out she lost $3000 dollars I guess she flipped out.

[Tud Ferguson]

Gold is money plain and simple, so your question is really, what is money? Why not donuts or pencils?

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About 2000 years ago Aristotle defined the characteristics of a good form of money. They were as follows:

1.) It must be durable. Meaning it must stand the test of time and the elements. Money is a medium of exchange and a store of wealth so whatever form it takes, it must be able to handle the wear and tear of constant trading and transactions.

2.) It must be portable. Meaning it should be practical in the sense that it holds a high amount of 'worth' relative to it's weight and size. In other words, it's "worth" must be very dense. Imagine if money was in the form of lead bricks, these bricks would be very dense, but it would be a nightmare and near impossible to constantly exchange large amounts. And you can forget about carrying them around in your pockets.

3.) It must be divisible and consistent. Meaning it should be relatively easy to separate and distribute in smaller forms without affecting it's fundamental characteristics. This concept also works in reverse in that it should be relatively easy to re-combine several divided pieces of the money into a larger, single piece. This makes houses and paintings and cars unpractical as forms of money because taking them apart would affect their fundamental characteristics. An extension of this idea is that the item should be 'fungible'. Dictionary.com describes fungible as:

"(esp. of goods) being of such nature or kind as to be freely exchangeable or replaceable, in whole or in part, for another of like nature or kind."

4.) It must have intrinsic value. This characteristic carries a bit of a subjective quality in that everyone views the world through a different lens and what I view as valuable may not necessarily be valuable to my neighbor, but for the sake of argument let's just say that there is a consensus of value given to a certain material. The basic understanding behind intrinsic value is that the material carries 'worth' in and of itself. It does not derive it's value from anything else. It just sits there and is valuable. This is why paper currencies with no backing will not stand the test of time. Paper currencies only derive their "value" from what is known as legal tender laws, which are in essence a threat of legal prosecution, and or force, if they are not accepted as money for payment.

This fourth point brings up the point of scarcity, which is in essence a matter of intrinsic value. Paper currencies in circulation today, such as the dollar, euro, yen, swiss francs, zimbabwe dollars, etc... they are all now purely fiat instruments. (by fiat, I mean that their use is declared by decree and usually by threat of force. Definition of fiat.) The governments that sponsor them have essentially unlimited power in their ability to create new supplies. Because of technology, it is now simply a matter of typing something into a computer and the amounts are instantly credited somewhere. So in theory the supply of dollars for instance is infinite, and it seems like lately the wizards in Washington are trying to see whether this theoretical limit can be reached. Take Zimbabwe as a practical real world example. It now takes trillions of Zimbabwe dollars to buy a roll of toilet paper.