How does one determine the value of gold? The question takes on added significance today when we are told that the world is in danger of imploding. James Turk deals with the issue of valuing gold:
When considering whether gold is a value investment, one needs to first recognisethat gold does not have a balance sheet, management team, price-earnings ratio orany of the other things one needs to analyse before making an investment. Also, golddoes not generate any cash flow, so it does not pay a dividend. We can thereforeconclude from these observations that gold is not an investment. Indeed, it issomething different, which means that normal investment analytical techniquescannot be used to determine gold’s value.
Value of course arises from an item’s usefulness, and gold is useful because it ismoney. Though only used as currency these days in a few places like Turkey and Vietnam, gold is still useful in economic calculation, or in other words, measuring theprice of goods and services.
For example, when the Maastricht Treaty was signed in February 1992, one barrel of crude oil cost $19.00, €15.95 (Dm 31.30) or 1.67 goldgrams. Now it costs $91.79, €71.27 or 1.61 goldgrams, which makes clear that not only is gold useful incommunicating prices, it preserves purchasing power. Gold has been useful in theseways for over 5,000 years, so it is logical to assume that gold will remain useful for the foreseeable future.
Some say that the gold price rises and falls, but they are grabbing the wrong end of the stick. It is the purchasing power of national currencies that rise and fall. Here isan analogy to make … Read More