Why Gold Will Eventually Be Almost Worthless

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Gold coins
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One of my favorite episodes of the seminal sci-fi show "The Twilight Zone," titled "The Rip Van Winkle Caper," involves a group of criminals who steal $1 million worth of gold bars from a train en route from Fort Knox to Los Angeles. After successfully pulling off the heist, they head to a desert cave, where the genius of the group has constructed a clever set of chambers that will put them in a state of suspended animation for 100 years, after which they will emerge not only rich, but immune from prosecution due to the passage of time.

Of course, as with every episode of "The Zone," there is a Serling-esque twist at the end. After they reawaken, one by one, the thugs eliminate each other, until only the genius is left lying by the roadside in the hot sun, out of water and miles from town. A couple in a futuristic car stops to help, and he offers them a bar of gold for a drink of water, but he ultimately succumbs to the heat and dies.

The couple is puzzled as to how someone ended up in the middle of the desert in the midday sun, but more so, why he offered up the gold as if it were really worth something. You see, 50 years prior, gold had lost its value when scientists figured out how to manufacture it.

Dun-dun-daaaaaah! ... Cue the ironic narrative and pan up to twinkling stars in the night sky.

Alchemy aside, we're not going to figure out how to manufacture gold anytime soon, but I believe there's another reason that gold will eventually lose most of its value.

What Gold Did Once, Technology Now Does Better

Historically, gold has been used as a store of value, something you could carry across borders and cultures and understand that it could be exchanged for goods, services or even cash.
It's rarity, malleability, and attractiveness made gold the preferred metal when making jewelry -- something you could give someone, or yourself, that expressed value.

The demand and trade in gold created markets in the yellow metal, and naturally, derivative products such as gold futures and ETF's were developed on the underlying commodity -- securities which became staples of the financial services industry.

Stats for 2012 -- the most current year available -- show that 90 percent of the gold produced each year is used for jewelry or investments, with only 10 percent going to industrial use. That means that almost all the demand is based on the archaic idea of gold as a universal store of value. But every day, the Internet and the free flow of data undermine that concept.

It's no longer necessary to store value in an inefficient and -- for practical purposes -- non-portable format like gold. Information flow is no longer restricted by borders, and a small, lightweight piece of plastic can reveal the value you own in the form of currency anywhere there's an Internet (or even a good phone) connection, eliminating gold's usefulness.

Who Wants Gold Most?

More than half of the world's jewelry demand for gold comes from India and China, countries that have 13 percent and 1.1 percent broadband penetration, respectively.
Almost 30 percent more of the demand for jewelry gold comes from underdeveloped countries with similarly low broadband penetration rates. But as the populations of those countries continue to gain access to cheap data transfer services, they'll increasingly move to rely on electronic or, if you will, virtual stores of money.

As this trend increases, it will become less and less profitable for the financial industry to deal in gold-based products, which will accelerate the drop in demand. Eventually, gold will only have a worth based on industrial demand, and little, if any, intrinsic value.

This won't happen overnight, of course. Habit and tradition take time to die out. Gold's value is based on faith –- like the faith you have in the U.S. dollar -- and there are many vested interests who want gold to retain its value the way it has for thousands of years.

The Internet in its current form, however, is barely 10 years old, and has yet to truly reach the masses. When it does, we've seen the speed at which technology changes habits and allows people to let go of closely held beliefs. It'll be no different with gold. Someday you'll see those gold coins, jewelry and bars in the same way you now look at a set of bound encyclopedias, a Beanie Baby, or a BlackBerry: something you once would have paid a lot to own, but that's now an obsolete anachronism, valuable only for its attractiveness and nostalgia value. In other words, not very valuable at all.

No man is an island, or even a peninsula, so I encourage your feedback in the comments below. And don't forget to pick up my book, "Trading: The Best of the Best - Top Trading Tips for Our Time" via Amazon.


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183 Comments

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David Kay

The challenge is many different things might become worthless and hard to predict what becomes the replacement. Problem with current alternatives of gold, eg US dollar, is ability to create trillions of new money with no effort, can become ponzi scheme.

Gold can be seized (google executive order 6102).

Similarly NSA or other group with lots of computers could compromise any current system like bitcoin if desired.

The challenge is for some entity to become like "ebay", and with new technology dominate currency with some form that is trusted. That could be a government of a nation, but as seen in current example of US government can be easily abused with endless going further in debt and monetary expansion to point where system may collapse... and no one really cares because they are too busy playing partisan politics blame game.

November 07 2014 at 10:53 PM Report abuse rate up rate down Reply
thikravin

this article is a smoke screen for a negative article about Gold. In the article it said that a piece of plastic with your savings total could replace a physical piece of Gold when traveling across a border. and then ridiculously proclaimed Gold is unnecessary . Wow. Firstly no-one says that in a society "with" credit and confidence in their currency, that a physical piece of gold is more convenient or easier or better than a credit card or credit fob. but someone will have to have faith in that credit, where as : gold in hand is real hard money at the current locations trade/spot price. Physical Gold is held so when there is a financial or economic crisis, credit cards and possibly cash won't be of value or may have its value suspended. and gold would come into play. Just like Governments do it. Also, an unlikely Total apocalypse may make everything short of food, water and munitions worthless. But Im sure Gold over worthless cash would be the payment of choice in that scenario too. Now conversely , an economic crisis "is" likely , and holding physical gold regardless of price swings is smart considering whats happening in the global economy. Thats what the central banks are doing: buying physical gold ( while they manipulate the paper gold price down ) In conclusion, your savings total on a plastic fob, doesn't translate to immediate hard money payment in a crisis situation so the author has taken the benefit of holding physical gold completely "out of context" , and probably on purpose.

October 26 2014 at 8:52 AM Report abuse rate up rate down Reply
raysteffins@yahoo.com

You people who treasure your gold so much and take issue with the author, what happens if the economy were ever to crash?. Your Gold and paper money will indeed be worthless compared to "useful" assesses such as food, shelter, tools, ammo, guns, transportation, livestock, land, etc. Gold's usefulness basically boils down to looking pretty.

June 10 2014 at 1:31 PM Report abuse rate up rate down Reply
Malcolm Palle

The question one should be asking the author is whether he actually has any real wealth of his own to protect. This article could only have been written by someone who has not had to apply his mind to that task. The appreciation of golds value comes from the fact the wealthiest people in the world, kings and queens, world leaders and central banks choose gold as the ultimate store of value and have done so since time immomorial. Does thus guy really believe that the internet will educate these people out of their faith based belief system? Education by definition is a top down process. If anything gold ownership has been enhanced by the advent of the internet.
An average person may not always understand gold or choose gold as a preferred store of value, but a very wealthy person will always have some hard assets such as gold, property etc in his or her portfolio of assets. Gold is money. End of.

May 01 2014 at 5:10 PM Report abuse rate up rate down Reply
Doc

All money is fiat and is based only on the faith the public has in it. the fact that gold or silver a physical thing that can be held in your hand doesn't change that.

April 19 2014 at 8:52 AM Report abuse rate up rate down Reply
bonniangels

I don't "buy" this guys theory .
I'll keep my gold .

April 05 2014 at 9:21 AM Report abuse rate up rate down Reply
loki2cb

If gold will be worthless...can I have it all...? No?....didn't think so..

March 28 2014 at 7:06 PM Report abuse rate up rate down Reply
deut6.4

i cannot believe how stupid the premise of the article is, how flawed it is, how illogical it is.

oh, so, a plastic "card" based on some fiat currency because you "believe" in it is more valuable, or eventually more valuable than gold?

Who is this idiot writing this crap? Probably some shill for the central bankers and their fiat worthless computer generated "money" that is worthless. maybe a rothschild shill?

This is an IDIOTIC PREMISE to the point of being insulting/

The amount of Gold being purchased by the biggest economic powerhouse in the world right now (china) is astronomical, not to mention asian countries, germany, india, brazil, etc. this moron is misleading people.

Gold supplies are low, the price has been artificially suppressed, and they will bring it down to around 900 before they let it fly.

you idiots go ahead and trust in the "dollar" and other computerized currencies based on nothing, as gold has proven itself for the last 6000 years. The Federal reserve is the greatest crime against America ever, and
people need to know IT WILL CRASH.

The author of this article is a liar and a deceiver.

February 27 2014 at 2:47 AM Report abuse +4 rate up rate down Reply
elz417

Typical bottom of the market indicator.

February 27 2014 at 1:25 AM Report abuse rate up rate down Reply
lorepod

I have to chuckle at these ads that are saying that gold is going to go over 5 thousand dollars an ounce and to buy from them now. If gold is going to go up that much, why are they selling?

February 23 2014 at 12:18 AM Report abuse rate up rate down Reply