Why gold?

I have seen this being discussed in several newspaper articles: In view of the financial crisis people withdraw their money from the bank and buy gold. They do this to such an extend that Germany's main internet gold coin dealer has stopped accepting orders. Amazing. What do they think they are doing?

Ok, you don't trust your local bank XY anymore and, depending where you are, you either have so much money that you are beyond the limit or you even don't trust the banking guarantee system anymore. Therefore, you don't want to leave your money in your account. Fine, you are a pessimist.

But why on earth are you buying gold? Obviously you are so afraid that you are willing to renounce the interest you could be getting for your money. But why don't you keep your money in coins and bills and put it in a save place (safe, mattress, cookie jar).

But that's not good enough for you. You don't even trust your (or any other) currency anymore and want to avoid the risk of inflation. That is you don't trust that somebody is willing to give you enough real stuff for your bills. That is, you mistrust your complete local economy.

You really want to make sure. Therefore you buy gold. Because that keeps its value. That you know.

But why on earth do you believe that? Why do you think that the value of gold is in any way less symbolic or just based on common agreement than the agreement of many people that you will give you food if you provide them with enough pieces of paper on which somebody printed the portrait of some former president in green color?

I have bad news for you: You cannot eat the gold, at least it has zero nutrition value (see wiki article linked above). You can use it for electric contacts that will not corrode. And yes, you can make jewelery from it (as it is done with a third of the gold that is mined). But again, the value of the jewelery is just that "everbody knows gold is precious". And this is only the case as long as everybody believes that. But there ist not much you can actually do with gold that you cannot for example to with copper or palladium (which is an excellent catalyst for many reactions involving hydrogen by the way). The value of gold is only high because everybody believes that. But that's the same for dollar bills or any other currency (leaving out the Icelandic crone for the moment).

And it is not beyond historical example that people stopped believing that gold has high value: As pointed out buy my history teacher in high school this was the main strategic mistake of the Spanish crown: not realising that you can destroy the marked if you suddenly have a lot of it. The Spanish kept importing huge amounts of gold that they had found in the Americas without noticing early enough that the others lost their interest in gold as soon as the Spanish suddenly had so much. At the same time, others found that it's a much better to invest into the real economy.

It took some more years to understand that the value of a currency is not so much based on all the gold that the central bank holds but much more on the economy that backs it.

And of course the telephone desinfactants that stranded on the earth in our past as told by the hitchhiker's guide to the galaxy also had the great idea to use leaves as bills. Which lead them to burn down all their woods.