Thursday, 17 December 2009

Plasma TV versus Gold

Michael Pascoe wrote an article in The Age criticizing gold as an investment. In an article titled Is a Plasma TV Better than Gold?, Kris Sayce responds by saying that gold is a good investment because it is better than buying a plasma TV.

The value of your plasma TV isn't going to rise at any time, regardless of how long you own it.

Keep it for five years and you might be lucky to get back one-tenth your purchase price if you flog it on eBay. Adjusted for inflation it would probably be closer to one-twentieth the purchase price.

So why is there such a fuss about gold being in a price bubble? Sure, you can't watch your favourite soap opera on a bar of gold, but even if we look at gold as a consumer item rather than an investment item it doesn't make sense that so many professional investors and analysts and even the general public would rather not buy the stuff.

I mean, let's imagine you buy an ounce of gold at the current price of AUD$1,264.29, what do you think the worst possible outcome could be?

Could it fall to AUD$1,000? Sure it could. Could it fall to AUD$800? Why not.

And could it even fall to AUD$500? Of course it could. But we know the price of a TV is going to fall much more than that over the next five years. We know that as a fact.

Yet that doesn't stop consumers from splashing out a couple of grand on the latest 600 inch plasma.

I think what Sayce does not seem to consider is that you can get a lot of entertainment from a plasma TV whereas a bar of gold doesn't entertain you in the same way. You cannot watch a movie on a bar of gold.

I am personally not anti-gold. I think gold is a suitable element to use as an alternative currency simply because of gold's inherent physical and chemical properties, namely liquidity, scarcity, portability, and uniformity. These properties make gold very suitable as money. Paper money, I believe, is more suitable than gold mainly beause it's easy to carry around paper money (whereas carrying around a bar of gold to go shopping is not so practical). Even better is electonic money. But the problem with this type of money is that the supply is can be manipulated by government whereas gold supply depends on gold mining, which government has limited control over.

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