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Comment by riffer | Hacker News Reader

Sort of. There's a real tendency to look at these CPI prints and say that inflation is low, but that is only one aspect of inflation.

Aggregate price inflation has been low over the past several years. A big part of that is that energy prices are much lower than they were three years ago (remember $4+ gas?). That is only a very temporary phenomenon (long term supply is constrained, demand is exploding as Asia develops), and in any case energy is only one part of the economy.

But asset inflation is a real problem. That is why the price of gold has tripled in the last half dozen years. If you put money into either stocks or cash 5, 10, 15 years ago, you're way behind where you would be having put the money into a store of wealth that is portable and not subject to inflation.

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Gold doesn't do anything, except in some specialized applications.

Suppose you had some completely arbitrary asset. Kneezles. Over the last few years, the price of kneezles have tripled. The kneezle-bugs come out of the woodwork and say, "Look, if you had invested in a store of wealth that is not subject to inflation, you'd be doing better. Your kneezle-denominated wealth has fallen greatly."

Well, what are kneezles anyway? They're lumps of metal that don't do anything. Hey, sounds familiar...

> Gold doesn't do anything, except in some specialized applications.

Neither do paper dollars - it's an abstraction that has been historically coveted and accepted as money, and that's why it's valuable. I'd take gold alternative to paper money if someone wanted to pay me in it and had proof of its purity.

Gold doesn't do anything

Gold is a store of value. Stores of value provide a useful function in society. Very few things actually qualify as stores of value, and gold is the most known of them so I used that, but you could replace the string 'gold' with 'store of value' in my argument without changing the substance of my argument.

"Store of value" is the technically correct term, I suppose, but it's a misleading term because it doesn't actually store any value. The term "store of value" actually refers to currency, except civilization outgrew using cumbersome lumps of shiny metal to conduct its transactions.

Gold is a speculative device. Humans hold the future value one might hope to trade the gold for.

So are dollar bills. In some situations like prisons, so are cigarettes.

Something is a store of value because you expect that other people will value it as highly in the future as they do now. (Or at least some predictable fraction less, accounting for inflation.) Whether it's gold or dollars, it's still based on investor psychology, and is still just as subject to whims of herd behavior. Ask people who bought gold in 1979 how well it stored its value.

I know you're being sarcastic, but I actually saw this coming and invested a fair amount in kneezles. Now I wish I'd just bought kneezle options, since I could have gotten much better leverage.

What the hell do you mean gold doesn't do anything?

Gold is used by several industries. Gold is found in every cellular phone!

The reason gold is used as a metric against currencies is because its scarcity is NOT illusory. USD's scarcity is dictated by the FED. Gold's scarcity is dictated by the earth's limited supply of gold, and the socioeconomics of gold mining.

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