Does Gold have intrinsic value?

Just today at lunch, somebody mentioned - "what's the point of gold - it has no intrinsic value". My relatives say the same thing - "What's the point of keeping gold? You can't use it for anything". Or, "Gold just has psychological value - it gives you a feeling of being rich".

To all the folks who say that Gold only has psychological value, I propose the following thought experiment:

1. Open your wallet
2. Pull out a dollar bill, any dollar bill in your wallet
3. Think about whether that piece of paper has any intrinsic value

What value does it have? It takes a few cents to print it. It has no intrinsic value. It's value is mostly because there is a large number of people who are willing to accept it as currency and give you something of value in return.

Let me repeat that: The pieces of paper currency work because of a shared faith by a large number of people who are willing to accept it in return for something of value. The US Dollar, like gold, has no intrinsic value.

Similarly, Gold also works because there is a shared faith by a large number of people that it can be used as currency - like the US Dollar.

In fact, one would argue that a rational person should have more faith in Gold than the US Dollar. The US Government can destroy the value of the US Dollar by printing more dollars (in fact, this has been happening at a rapid pace in the last few years). Gold's supply is harder to control - you cannot generate gold in unlimited quantities. Gold tends to hold its value better.

In fact, the market seems to be acknowledging this reality - that the US Government will eventually destroy the value of the US Dollar, and Gold is a better store of value.

But the core point I wanted to make is: Gold has just as much intrinsic value as any piece of paper currency. People who buy gold, do so to keep their savings in gold instead of keeping savings in US Dollar.

Also remember, however, that Gold has stood the test of time (has been used as currency for the last 2,000 years). The paper currency has only been around for less than 200 years.