Gold rests on a mass psychological base that has remained reasonably stable for thousands of years. Well, if you want to to call something stable that went from $100 in the seventies to $800 in the early eighties back to $300 at the turn of the century to $1800 now. At least it never went to $0 as many currencies did in past millenia.

For me, that kind of "safety" is like becoming a farmer to avoid starving to death in the event of war.

Arguably the dollar price of gold reflects the dollar's instability. You see run-ups in the dollar price of gold after the inflation / stagflation of the seventies and with whatever the Fed has been doing the last few years.

The problem I see is that fears of inflation swing much more wildly than actual inflation. If the gold price were a reflection of actual dollar instability, a chart of the inflation adjusted gold price should be a flat line. In fact it shows swings of several hundered percent.

The price of gold is a reflection of inflation fears, not of inflation. I'm not saying it is too high or too low right now. But gold is clearly unfit for purpose if you're looking for a safe haven or a store of value.

I would argue that it is, the flat line could be said to have tripled from the seventies to right before it took off during the current panic. If one had bought gold before the panic and held long they would most likely see the same trend as was seen from the 70's up until the panic. The thing about gold is it is subject to panic buying when currencies are debased and it is exactly the time that someone that has held long in gold should vacate there position, wait for it to implode and then double down on it again. Gold purchased at it's baseline is actually one of the best hedges available. The problem is gold goes unnoticed until there is a panic. Institutional investors ignore it because it's performance is long while others ignore it because it is not a high profile security that the institutions are chasing.

It's not just inflation, though. Compare the history of platinum prices with those of gold. There is definitely a psychological component to the run-ups in gold which has nothing to do with immediate economic pressures.

Same as with any other currency. The reason people invest in USD instead of pink shells is because people will pay for USD disproportionately to its functional value.

You could certainly invest in platinum, but it's value is still rooted in practical utility- people won't pay for it unless they have a use for it.

Why is it gold that is partly a currency, instead of platinum? It was established as a currency back when its utility really was equal to its value, and people noticed that it was a valuable and stable resource.

you make these points 1. used to be a currency 2. stable resource

which have helped me understand that 1. dollars used to be tied to gold. now USA is making more dollars, thereby devaluing dollars relative to everything including gold.

2. the supply of gold is relatively fixed compared to the supply of dollars these days

For reasons others here have mentioned, and its relative inertness. Most other things with similar qualities have the unfortunate habit of oxidizing and effectively vanishing. As long as people keep valuing it, it will keep having value, and it won't decrease in quantity.

it can be readily and universally exchanged for goods or services, and has been that way for thousands of years

so in short, it is valuable because we all think it is

> it can be readily and universally exchanged for goods or services

I'm pretty sure all of the retailers in my area only accept USD. Nobody even bothers with the Canadian exchange rate on this side of the border, although some (and any vending machine) will refuse Canadian coins instead of accepting them at a 1:1 value with American ones.

The fact that the now-fiat currencies of the world used to be pegged by some fixed ratio to gold and to one another hasn't totally left the collective psyche.

One of the principle reasons people value it is that so many world wide banks hold it as a hedge against turmoil.

wouldnt you rather use a currency whose value does not depend by dumb politicians?...wouldnt you use a currency whose value truly depends on the laws of supply and demand?

The Fed is not entirely independent of "dumb politicians" since it targets both inflation/deflation and unemployment. When politicians make exceptionally stupid decisions, such as borrowing too much money which results in a bubble of productive overcapacity that then pops and produces excess unemployment, then the Fed has to react by devaluing the dollar to bring unemployment under control. It would be preferable for it to have an adversarial relationship with the politicians in which it would raise interest rates when fiscal policy starts to get out of control in order to make sovereign borrowing too painful past a certain predefined level (such as a percentage of GDP) but this seems unlikely given that politicians are responsible for nominating and confirming Fed governors.

I never thought of that. That's kind of staggering. We should be electing the fed.

No, we shouldn't. Politicians have a very long and impressive history of running up excessive debts and then printing their way out of them. The Fed was created from a careful compromise between loose money and sound money interests, and could probably do with a bit less interference from the political class. As someone who works hard and saves carefully for retirement, I would prefer to avoid to have the risk that my investments would be devalued in real terms at some point in the future because the two main political parties in US over the last couple of decades seem to view compromise as the act of raising spending, cutting taxes, and borrowing money.

If you're joking you got me. I can't think of another commodity whose value is affected by the government to the degree of fiat currency. Even if you leave the impact of government borrowing/spending aside, a dollar (or any other fiat currency) is just a piece of paper until the government institutes legal tender laws and demands people make and accept payments denominated in that currency.