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Old 01-24-2013, 07:46 PM   #20 (permalink)
Luckless
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Join Date: Feb 2011
Location: PEI, Canada

The problem with many precious metals is how little useful purposes many of them have. They are being driven to artificial highs by people entering into the cycle of "It is valuable because it is valuable". Kind of like how some 'celebrities' are famous. They haven't done anything worth noting, but the media keeps talking about them because the viewers keep listening. One little bump and people stop caring.

Investors buy gold because gold is valuable. Buying gold drives up the price, and other investors watch that price rise. They look at the history of its price and see it has steadily risen for ages, declare it a "good investment", and decide that they want to buy some of their own while it is still going up. More people want gold, price gets driven up, early investors start selling, and a relatively small amount of gold cycles between hands as the price keeps rising. (Consider that gold once had a huge value for sanitation reasons. It was basically the only material we had that didn't readily tarnish. Because of how many of its previous 'productive' uses have been replaced by other modern materials, and how much more effectively we can mine it, the 'useful' amount of gold compared to supply has actually dropped in the last 100 years. According to supply and demand concept it should be worth less today than it was before.)

In a way you're really buying in to a very awkward pyramid scheme of sorts with gold, and if an event big enough shakes the world to the point that everyone starts considering what they actually have and how it helps them survive,... Well, you can't eat a gold bar. (Technically you can, but it won't do much good for you. Mostly just pass through you, possibly kill you if you ate enough at once.)
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