Meaning of Intrinsic Value

Intrinsic value, in general, is the argument that the value of a product is intrinsic within the product rather than dependent on the buyer’s perception.

In commodity money, intrinsic value can be partially or entirely due to the desirable features of the object as a medium of exchange and a store of value. Examples of such features include divisibility; easily and securely storable and transportable; scarcity; and hard to counterfeit. When objects come to be used as a medium of exchange they lower the high transaction costs associated with barter and other in-kind transactions.

In numismatics, intrinsic value is the value of the metal, typically a precious metal, in a coin. For example, if gold trades at a price of USD 450 per fine troy ounce ($14/g), a coin minted from one troy ounce of fine gold would have an intrinsic value of USD 450. When the intrinsic value becomes greater than the face value, the coins are in danger of being removed from circulation in large numbers (an expression of Gresham’s law). When the coin is in use as money this effect can, at the margin, mitigate forces that might otherwise cause inflation. When copper prices skyrocketed in the mid-to-late 1970s, there was a fear that the U.S. one-cent piece might succumb to this fate. In fact, this did happen, leading the Mint to change the composition of the cent in 1982.

Due to this intrinsic value, an ounce of gold measured in hundred years ago is exactly similar with ounce gold today and must be similar with ounce gold on the next hundred years. This become a base reason for the gold to be a truly anti inflation investment tools.

If we look at other popular investment tools, such as oil and stocks, as a comparison, they are not fit with term anti inflation tools. They are new to be an investment vehicle (start only from 18 centuries), and the demand for them even could disappear in the market. See further explanation here >> Gold And Its Intrinsic Value<<

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December 12, 2009 - Posted by | News of Gold, Too Good to Archive

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