# Is there an exact formula to determine the value of gold?

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I know that the value of gold is determined by the banks but what are their calculations?

Say hypothetically a meteorite with 10,000 tons of gold crashed in the middle of the US. We know the value of gold would go down, but by how much and how is that calculated?

In: Economics

Gold, like other commodities is traded on the open market by people. Its worth whatever people are willing to pay. End of story.

IF 10,000 tons of gold was magically available tomorrow, its likely the price people would be willing to pay would significantly decrease.

There is about 170,000 tons of gold in the world currently mined. So this would be an immediate increase of about 6% in world supply. This should cause a decrease in the price, especially since this would be a huge new amount available (somewhat) immediately.

the value of gold is lower limited by the cheapest scalable cost to source the gold.

The upper limit? demand. any particular source of gold is not scalable. so the next higher-cost source for gold comes into the game. and the next, and the next. untill demand is satisfied. The marginal cost to isolate one more atom of gold will be the value of gold.

Note that the gold supply is basically infinite, you could source it e.g. from sea water. It justs that the efford to do it is too high compared to other methods.

Same with oil, helium, bitcoin, or chalk.

I think by far one of the major educational hurdles in this country is people being under the impression that the value of things is “set” by someone or something who is in charge, and if we can just get them to change their minds then we can force them to make the “right” things more or less valuable. Why is gold worth so much? Why are athletes paid so much? Why aren’t garbage men paid more? Why are healthy things so expensive? Diamonds are just rocks stupid, etc…

The value of things depends solely on the demand for the thing, and how much of the thing there is to supply that demand. More people want something, the value goes up. Less people want something, the value goes down. If there is not much supply compared to the demand, value goes up. Too much supply and too little demand, value goes down.

It’s the same with stocks, gold, companies, jobs, food, salaries, etc…

Things are worth what people are willing to pay for it. End of story, full stop, period. If someone will exchange you something for something else, that’s the value. That’s how the market functions. Once that stops being the benchmark then everything quickly gets out of whack.

The value isn’t *calculated* according to a formula, but *discovered* as people’s willingness to pay for it adapts to changing market conditions.