Gold’s Use Value in Today’s Market
There are several misconceptions pertaining to gold and the gold market that lead many people to the conclusion that gold is not something they want to hold in their portfolios. One of these misconceptions is that gold doesn’t have very much use value. True, some gold is used in electronic devices, but most of it is stored, hoarded, or turned into jewelry. Investors listen to people like Warren Buffet, who say that we dig up gold just so we can bury it again, and come to the conclusion that they do not want to hold gold in their portfolios.
But such thinking is overly simplistic and misleading. The fact of the matter is that gold’s use value is in its exchange value. While economists tend to differentiate the two when analyzing commodities, doing so is inappropriate for gold. Gold has unique characteristics that make it especially desirable as a medium of exchange. This is why it has been used as such in so many cultures for thousands of years in history.
First, gold’s supply is relatively stable. While most commodities are consumed in industrial production, most of the gold produced is not. Consequently, the supply of other commodities is largely dependent upon their use values in today’s economy, and a shift in the economy such as a technological advance can change the supply-demand fundamentals of commodities. Consider oil as an example. Before cars became ubiquitous, oil had very little use value. While it is true that oil was used in lamps and for lubrication in machinery, the industrial demand for oil was negligible relative to its supply.