If gold is worth a LOT more than the cost of production, then production will be increased until the value of it is reduced to the cost of production plus normal business profits. <
Nope,not true.the value of gold thru most of history is NOT related to the cost of production >
If gold is worth not much more than the cost of production, then people will prospect for oil, iron, nickel, copper, grow trees, catch fish, make cellphones or electric cars or something which they think might return more than digging up some more gold.
It's simple economics.
The reason I'm not investing in digging up gold is that I don't think the rewards are worth it compared with other options.
If gold was right now worth $10,000 an ounce, you would find a very large gold production industry developed. Cigarette makers would switch to filtering gold from the oceans. Cellphone makers would do research on converting mercury and lead to gold. Corn growers would switch to digging up their fields to find gold. The price of gold is of course related to the cost of production.
As with all products, sometimes the cost of production is very low compared with the value, which is when we get a gold rush such as to Otago, Klondike, Coromandel. Sometimes it's high and mines are closed, dredging stops, people go and get something more useful to do. Sometimes tomatoes are very high in price and people go into the industry. Sometimes there is a glut of them and they are left to rot on the vine while growers switch to something better. Sometimes SUVs are in great demand and Ford/GM make a fortune. Other times oil is highly profitable and SUVs are good for scrap metal, along with the companies producing them. Sometimes there's a glut of oil and they can hardly give the stuff away.
Money never has a stable value either, even if it is made of gold: < Other desirable features of money are that it should have a stable value and be difficult to counterfeit.>
In my memory, gold has been $35 an ounce, up to $800 an ounce, down to $270 an ounce, up to $1000 an ounce, back down to $800 per ounce. It certainly doesn't have a stable value.
Mqurice |
