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The gold bubble

Willem Buiter has great analysis of the fundamental value of gold: or rather the lack of it.

He coins the term “fiat commodity” to describe the value of gold: as with a fiat currency, it had value because people believe it to have value, but because it is actually economically useful.

Of course, this does not mean that you should not invest in gold. It does not even mean that gold cannot be a safe investment under certain conditions. It does explain why the price of gold is so volatile, and why it is such a lousy long term investment: it is fundamentally the same as holding foreign currency in (non-interest paying) cash.

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