If Gold’s Value Bottomed Out, World Markets would Collapse

One of the favored sayings in the gold industry is that “the value of gold has never gone to zero.”

This is a reflection of the fact that, unlike stocks, bonds and cash, gold has actual intrinsic value. Gold is real. You can feel that value when you hold a gold coin in your hand. Gold is heavy and bright. In short, it is unlike any other asset in the world.

There have been companies whose stock has soared to the stratosphere, only to fall to worthlessness when those same companies eventually failed. The railroad stocks are an example of a broad category of stocks which eventually saw many in their ranks disappear. More recently, companies like Enron and WorldCom once flew high only to eventually end up non-existent.

Nothing like this has ever happened to gold and it is generally believed that it would be impossible for the value of gold to evaporate to zero.

However, under the theory that “nothing is impossible,” let us examine the conditions which would have to ensue for gold to become worthless. Indeed, not only would world markets have to collapse in order for gold to become worthless, but the entire world would have to see an upheaval of proportions that stretch the imagination.

Gold is a popular asset for use in jewelry. For centuries it has been treasured for use in decoration and as a store of value. In order for gold to become worthless, it must become regarded as undesirable for use in jewelry and other forms of decoration. It boggles the mind to imagine a circumstance in which gold is no longer regarded as lustrous and wondrous. The only way gold could become worthless for jewelry is if the people of the world became so poor that they could no longer contemplate owning or buying jewelry and demand for gold for jewelry would fall to zero. Of course, the conditions under which these circumstances could arise would involve economic depression many times more severe than anything that the world economy has ever seen before.

Gold is an integral part of world governments’ financial reserves. World central banks, including the US Federal Reserve, hold large quantities of gold as reserve assets and assets of last resort. If gold were to become worthless, the reserve assets of world governments would have to be devalued right along with gold, sending those governments into fiscal and monetary chaos.

Gold is a key component for industrial uses due to its electric conductivity, malleability, and resistance to corrosion. As a result, a great deal of the demand for gold originates from industrial users who use gold in everything from aerospace applications to components in microcomputers. In order for gold to no longer have any value to these end users, they must find a suitable substitute with the same unique set of properties, or else demand for their products would have to fall to zero, thus eliminating their gold demand.

Neither scenario would seem to even approach anything resembling a realistic possibility.

The probability of the value of gold falling to worthlessness is remote enough to be almost completely disregarded as a possibility. The historical fact is that gold has always been valued for its beauty, utility and portability and has never been considered worthless in any society or economy that was aware of its existence. There is no reason whatsoever to believe that this could ever change in the future.

Stocks and bonds have sometimes become worth less than the paper and ink used to create them. But it has never been said of gold that it isn’t worth the paper it’s printed on!