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What is gold backed by?
Thanks for the responses.
If I am interpreting the responses correctly, it seems most of the pro gold arguments continue to boil down to the idea that gold's value is based on perception and precedence.
Jag - I like your comment that gold will only be used if the government ceases to exist or in the absense of a financial system- in which case other things will be of much more importance. This makes sense to me. That, or its likely people will trade with whatever govt currency has become the strongest - perhaps the Swiss Franc, Canadian Dollar, or the Brazilian Real. Gold can be a trade, and will rise and fall with supply and demand, but its just blinking lights backed purely on hope and perception imo.
Lemon - I hear ya regarding the historical precedence of gold - but the idea that history might repeat itself is just perception too. There are lots of things that take time to produce but have no value - so just because gold took time and money and human effort to extract doesnt mean it has value. I can dig rocks out of my backyard, but that doesnt make them worth anything.
JK - Re nothing backing fiat currency: My point is not whether fiat currency is abused (it clearly is) - but rather gold has nothing backing it. I would argue that fiat currency is backed by a heck of a lot more than gold is. Gold stands on its own, as Yellow said - but its purely on perception and precedence. Fiat currency is at least backed by our nations efforts as a whole (the govt being able to tax these efforts so to speak). While the fiat currency can be printed to dilute it to nothing - at least before that happens its backed by quite a bit. Gold is backed by absolutely nothing - not even a promise to attempt to be worth anything. Its a rock. With a dollar, or a treasury bond, I get a promise to be paid back. That promise, over time, has become suspect - but is still being paid minus inflation. Gold doesnt have that promise, no attempt, no person backing it, no guarantee that it can be used in the future, and no industrial or survival use. Again, my point is not to say fiat is a great thing....its just that all the arguments against fiat can be used against gold imo.
idoctor - hysterical. I buy that argument more than any other for putting value in gold. Dont fight the emotions and desires of the masses! haha.
Gold is backed by the Govt more than Fiat paper when push comes to shove. Just look at how important Fort Knox is. Gold was made illegal to own for many years but paper & ink that the Govt has printed has always been ok to own & never been illegal as far as I know. That should tell us alot IMHO.
... just because gold took time and money and human effort to extract doesnt mean it has value. I can dig rocks out of my backyard, but that doesnt make them worth anything.
Gold has nothing backing it. I would argue that fiat currency is backed by a heck of a lot more than gold is.
Gold is an extremely heavy, shiny, malleable metal which doesn't tarnish or corrode. For its unique elemental properties, gold is highly valued for both jewelry and industrial uses, such as plating on electrical contacts. Given thousands of years of human history, it is highly unlikely that demand for gold will suddenly, inexplicably disappear.
'Backing' is a non sequitur for objects with intrinsic value. Paper currency needs 'backing' because it's a mere certificate without intrinsic value. Gold is one example of suitable backing -- a substance which has value per se.
Claiming that fiat is 'backed by a heck of a lot more than gold is' borders on trolling. That's too ridiculous to merit a response. Oh by the way -- new record high on the gold futures today. 
Getting back to reality, Joe2baba just emailed me this little fact on gold:
it takes 3000 gallons of water to produce 1 oz of gold there are a little over 10, 12 oz bottles of water per gallon. 3000 x 10 = 30,000 x approx $1 = $30,000 i think coke and pepsi are way ahead of the mining companies. there is gold in that there water. (which is also why multinationals are cornering the market on municipal water supplies. look at what they do to us with oil . just think what they can do with water) that is some scary research however a friend is a geologist and he looks for minerals for a mining company. the money is made on the claim, ie. whoever owns the claim has it assayed , say 3 grams per ton. they then figure the claim is worth so much at current prices. then they sell the claim to someone and make a profit without one shovel full of dirt being moved. as long as prices keep going up the greater fool theory works very well.
Just a few weeks ago CM stated he was selling all his gold and investing in farmland.
Humans... How brief their flames, yet how brightly they burn. When people run in circles, it's a very, very.. mad world..mad world -- Tears for Fears
I wanted to pose a question regarding gold. I am having difficulty getting behind the logic of buying gold, and perhaps peoples comments may enlighten me. What is gold backed by?
The major reason many people are buying gold is as a protection against fiat currency that is being diluted/printed too much. This fiat currency is backed by the government and its ability to generate revenues via taxing its citizens. As more money is printed, it is worth less. ok...got that part - and agree that the fiat currency's value will diminish.
So, what is gold backed by? Other than jewelry, its close to useless. It is used to produce very few goods. In other words, other than historical precedence, its backed by nothing. In fact, clean dirt has a higher value than gold when it comes to surviving or having the ability to produce tangible goods. Copper has many uses, silver has many uses, but gold almost none.
Gold has held its value in times when single economies have collapsed - but there has been no test of gold in the following combination of events: a) Global modern economy b) multiple leading currencies dying c) modern banking and infrastructure.
I just cant get myself to buy something that is backed by no meaningful use. I think buying dirt, or fertalizer or the like makes sense. I can trade it in the future almost regardless of what happens. Silver might be ok - at least its usefull in many ways. But gold...just doesnt do anything. Perception is a dangerous thing to stake ones wealth too - as it changes on a dime.
Thanks for any comments. And, please note the dirt comment is a bit of a joke so dont go too far on that!
Rickets,
You pose a good question. I would venture that any answer would depend on the circumstance.
IMHO, gold is basically backed only by itself in that there is a finite quantity of it and it cannot be created out of thin air at the will of some moneylender. For this reason it has been a good store of wealth and it's true value against other fiat currencies should vary with the quantity of currrency printed.
Gold as an investment strategy I will have to pass on as I consider that there are market forces at work which I don't understand other than that the moneylenders want /need to maintain FAITH in the fiat currency to keep their scheme afloat. They have a vast quantity of currency at their disposal at any time which can change the market way beyond my power to do anything.
That said, I question whether these moneylenders really understand the exponential function. IMHO, they are acting rather smug, having passed the Federal Reserve Act and continue to collect tax free interest on the fiat currency printed out of thin air and lent to the government and paid for by the taxpayer. But we are now in the vertical leg of the hockeystick ... very near the top ....and it simply won't work much longer. Then the currency returns to its intrinsic value. ZERO
So what is the intrinsic value of Gold? I'd say the amount of human labor to extract it. That is greater than zero so it should do better than paper. But if you are hungry then you would be forced to trade it in theory for the amount of food that could be produced with the same amount of labor.
IMHO, having a homestead that can support a family within a community of like minded folks with would be worth more that it's weight in gold! But gold could still be a unit of exchange that would be much more difficult to corrupt than a greenback!
Coop
Cash is the most flexible means of ensuring survival.
Weimar? Argentina? Taiwan? Brazil? Zimbabwe? I know you lean on the side of deflation, but ask any Vietnamese person in the US how they got here and most of them will tell you they bought a ticket with the shiny yellow metal that has little industrial value except for space exploration. Metals can be easily converted to whatever the current currency happens to be, but I wouldn't bet on a pile of inked paper to buy me some food during rough times...
Getting back to reality, Joe2baba just emailed me this little fact on gold:
it takes 3000 gallons of water to produce 1 oz of gold there are a little over 10, 12 oz bottles of water per gallon. 3000 x 10 = 30,000 x approx $1 = $30,000 i think coke and pepsi are way ahead of the mining companies. there is gold in that there water. (which is also why multinationals are cornering the market on municipal water supplies. look at what they do to us with oil . just think what they can do with water) that is some scary research however a friend is a geologist and he looks for minerals for a mining company. the money is made on the claim, ie. whoever owns the claim has it assayed , say 3 grams per ton. they then figure the claim is worth so much at current prices. then they sell the claim to someone and make a profit without one shovel full of dirt being moved. as long as prices keep going up the greater fool theory works very well.
Just a few weeks ago CM stated he was selling all his gold and investing in farmland.
Xray,
I don't think CM said quite that. I recall he said it was time to invest in productive land although the bottom may not yet be in on real estate. I do not recall he was selling all his gold to do that just in case others may get the idea it was necessarily time to go "all in" on land!
Coop
Rickets,
I did not say anything about historical precedence or effort to dig it out of the ground. You must be confusing me with someone else.
The main thing that is backing Gold is desire! It glitters.......women like it so men want it & best of all it is rare. The way the human mind works it has always commanded a big price while other animals could care less LOL.