Imperfect Cliffnotes: Gold is frequently touted as 'being in a bubble' in the mainstream financial press, often using income-focused methods for evaluating stock market bubbles. Since gold doesn't generate income by itself, their conclusion is that gold is always in a bubble. Bron argues gold is more like a bond without a counterparty risk, since it can leased out for yield. Or a special form of financial disaster insurance based on subjective interpretations. Link to full original text below. Interesting note, this is not Bron Suchecki's personal blog but the Perth Mint Bullion section blog.
I'd say if one ounce of gold could purchase the entire universe, it would probably be in bubble territory
Instantly raised 2 questions for me: 1. Is "a rational gamble" on physical really any less risky than a paper gamble? 2. If gold's value is but a mere "judgement call", then what is it's true intrinsic value?
Real deep man.........I will need some time to rationalise that concept.....and maybe a few mushrooms!
In response to wrcmad: 1) All investments have risk, including physical metals. Whether that risk is as great as paper, I think that depends on which paper and the timing. It can be as risky or riskier than paper. 2) metals have zero intrinsic value; they do have intrinsic characteristics or properties though....very big difference. The value that any asset has is the value that investors place on it....period. Gold wasn't always valued as money or anything for that matter. Seashells, sticks, peppercorns, tea leaves, beads, and other rather subjectively prized objects like gold in some cultures, were seen as holding great value. None had intrinsic value though all have specific intrinsic characteristics. The gold of today is the sticks and peppercorns of yesteryear. It will hold importance only for as long as some cultures collectively place a high value on it. Once they no longer do, it will be relegated to the same fate as seashells. The fact that there are costs in producing something does NOT at all equate to it having intrinsic value. Value is always a judgement and intrinsic means unto itself. An inanimate object like gold can not make a judgement about itself or anything else. Humans are required....that automatically means the only value gold has is extrinsic. Additionally, those costs are variable and fluctuate all the time....all of them. And more importantly, when any substance, whether gold or seashells comes out of favor or has not been held as collectively valuable by large numbers of people in a society as gold was for 99.999999% of the time it was on earth, then we can even more clearly see that neither gold nor seashells has intrinsic value, though they have intrinsic characteristics. Isn't it bizarre that the idiot people who argue that gold has intrinsic value but paper fiat money doesn't, always disingenuously forget to mention that paper money requires plenty of costs (including materials, energy, etc, etc) to design, produce, control and manage, implement anti-counterfeit measures, transport, store, protect, etc, etc, etc. Please don't let these dishonest "gold has intrinsic value but fiat paper doesn't" liars fool you. . .
I think that bit can actually be quantified. For any one gold deposit, just add up all the costs (fuel, consumables, labour, tech, admin, commercial building rental, infrastructure, transport, capital equipment costs etc) involved in the exploration, development, extraction & refining of a known deposit... then divide that $cost by the number of ounces the deposit contains. (of course that's on a deposit by deposit basis) Pretty sure we'll see that at current prices, 'gold' is the mining industry's #1 'loss leader'. How they can get a bar of dore to mint for less than $7000/oz these days has me stumped.
Funnily enough before I was professionally involved in PMs I thought intrinsic value referred to items MADE from gold, e.g. an old gold tooth filling that would otherwise be disgusting medical trash had value because it was made from gold - but only because the gold was able to be recovered and sold. Intrinsic value was the value of the gold content, not a special property on gold itself.
Generally I consider what "things" cost in the amount of energy taken, ie consumed, to produce the thing. The value is the energy stored. Other things to consider/ponder are if the store of energy is easily turned into something useful for example a jerry can of fuel into a building excavation or an ounce of gold into fiat currency etc When, how and why things may be desirable is another topic In my mind "Bubbles" probably exist when the energy equation doesn't add up or ration balance doesn't exist.
