Paper currency is the oldest Ponzi scheme that exists out there. I can wipe my nether regions with it. If there is a collective delusion that it has value, I can exchange goods for it.
My point being, Gold is a delusion, just like paper.
Paper currency is backed by the fact that you have to pay taxes in it. On tax day when the tax collector comes around with his security escort, you better have something ready if you don't want to end up in jail and your property confiscated. In the old days you paid taxes with a part of your harvest or with gold you got from selling your harvest at the market. Somewhere along the way governments figured they could play all sorts of economic games if they collected taxes using fiat paper instead. They print paper and pay their soldiers with it, you sell your harvest to the soldiers, and the soldiers come around once a year to collect the paper.
Notice how this entire system depends on the government's monopoly on violence. The real modern delusion is the many layers of indirection that insulate us from the real source of power in the natural world. Whether the thing that has value is gold, silver, paper, or bottlecaps doesn't matter. What matters is that the one holding the guns says it has value.
> Indeed, money is probably the most successful fiction ever invented by humans. Not all people believe in God, or in human rights, or in the United States of America. But everybody believes in money, and everybody believes in the dollar bill. Even Osama bin Laden. He hated American religion, American politics and American culture — but he was quite fond of American dollars. He had no objection to that story.
I think Harari is wrong when he suggested gold is a collective fiction. The first metal humans worked with was gold. This happened 40k years ago. Through gold, humans accumulated knowledge and invented metal technologies. We then progressed through metal ages, e.g., Bronze Age, Iron Age. Gold was an icon of metal technologies. It's not just a fiction.
And paper money really exists as a physical thing and required technological and societal advancement to exist. Currency is an abstracting fiction to make trade easier. Confusingly they are separate in the same way money has no utility in itself but is portable and may easily be exchanged giving it high utility.
I think paper money is a novelty. It's a good invention. It detaches the concept of money from gold. It makes money easily transported. But that can run amok. The Gold Standard was in place to protect societies from detaching too far from physical reality. "Good" paper money should be backed by physical reality. The US has a large gold reserve, education, research, military etc. But we're now at the verge of running amok with paper money.
Not when the supply of gold isn't fixed even disregarding relative economic values.
A bit pedantic but even if the value of gold rises from increased demand the fact one can mine it and get in on it means they would have gained from it while being newer. Furthermore it technically takes from the older holders by reducing the demand slightly.
The price is going up for two reasons: 1) fear due to the virus and its economic consequences 2) the USD is falling rapidly.
Gold as a commodity is almost exclusively priced in dollars globally. If the dollar plunges, gold will spike higher accordingly.
US spending being out of control right now (pointing to aggressive dollar debasement as the Fed 'prints' - runs QE infinite to monetize the ever expanding debt) and concerns about the condition of the US economy near-term with the virus, have pummeled the dollar lately.
So the price of gold is up due to the drop in the dollar, and there is a considerable fear premium on gold right now as well (likely to the tune of several hundred dollars). As that fear fades you'll see a drop in gold, from whatever new high it puts in, as in 2011-2016. It'll set a new higher low due to the dollar losing real value it will never recover from the spending spree going on (there is probably going to be $5+ trillion in unexpected spending that will occur over several years due to the virus, which was not baked into the dollar or price of gold previously).
> 1) fear due to the virus and its economic consequences
so, in "lures investors and pays profits to earlier investors with funds from more recent investors", the mechanism of "luring" is fear.
> 2) the USD is falling rapidly
seems to be a part of 1)
> Gold as a commodity is almost exclusively priced in dollars globally. If the dollar plunges, gold will spike higher accordingly
Isn't gold priced by a market? if the market has to move, the people must be willing to pay more dollars (or to say it another way: they have access to cheap dollars). It seems like people are exchanging their cheap dollars for gold, this is the part that doesn't make sense to me.
My point being, Gold is a delusion, just like paper.