[ The following is not authored by me but I submit it as a useful and thought provoking explanation. Original can be found on ZeroHedge]

There are a number of people who would like to see the return of hard money, which is to say money "backed" by gold or another metal (read: directly and unequivocally exchangable for, at an officially set and guaranteed rate of exchange, eg. a gold standard). So what "backs" gold?

Gold is fairly useless, on this there seems little dispute. You can't eat it, it won't keep you warm or light the dark etc. So it has no inherent value.

It has no practical utility except that it is exchangable for things one does actually have utility for, such as food, clothing, energy etc.

So... it has no value, but we value it. People value gold. We give it value. Why? It's useless.

Gold is given value by people, so even if we have a currency "backed" by gold, the currency is still, via gold, backed by the willingness of others to accept gold, which is itself based upon the expectation that others will do likewise in the future.

So people value gold because people value gold. Must have been a funny experience being the very first person to value gold, when you had no precedent and thus nothing to give you confidence that someone else might give you value for it later. Unless you were so wealthy that you didn't necessarily expect to need that value again, so then who cares? If you had so much value that all your other possible needs were met, and still had a healthy regular income, what would you do with that extra income? You'd have to be super-productive, or own super-productive assets to earn like that. But you wouldn't want to buy stuff just because you could (would you?), not if you didn't actually have a use for it, and especially not if others did (like food or something, and you buy it just because you can; the price would go up and you might actually be preventing some people from eating). That'd be wasteful and mean. Come to think of it, if you were wealthy on that sort of scale and you started buying gold (and you were the first to do so) just for the hell of it, you'd be making a market for it, so then it would have value for others... by selling it to you. You're giving them value for it. No one needed it for anything else, so no one is disadvantaged. Hey, you're actually doing others a favour, giving them value for something useless. So others can use your extra productivity. That's pretty cool. That's really the opposite of hoarding, isn't it? You're making more than you need, and you're not wasting it.

I think the general population should look kindly upon people with gold in that case, because if you have gold (useless stuff) you must have produced value you didn't consume, and traded it for useless gold (unless you didn't pay for your gold). You valued gold, which was good for whoever sold it to you, and you didn't let any value go to waste by buying useful stuff you didn't actually need and depriving someone less wealthy of something useful. And then not even using it. Therefore some one with gold should have credibility in the eyes of others, all else being equal, because they exchanged a surplus of useful stuff for useless stuff.

But there must be other people out there producing too much for their own needs too. What do they do with their surplus value? Hey, if they wanted to buy gold too (probably for much the same reasons?) then you wouldn't be the only one making the market anymore! That means you could even sell some later, if you ever needed to too. But you might never need to. So if gold were to be bought for these reasons by the super-productive, a lot of it might never come back on the market, just because it doesn't need to. So it's not actually consumed as such (because it doesn't have a use, nor does it wither away), but it's not on the market either. Bought, but not sold as much. Wealthy people absorbing useless stuff in exchange for useful stuff. Who knew?

I suppose little guys could get in on this gold action too... if they were making a bit more value than they were using, they could buy gold (ok, probably just small amounts), but they could buy however much their excess value will fetch, and sell it into this market made by super-producers later. Because it's durable, eh? And small. And you don't need to do anything to it, you know, like maintainence, or learn how to use it (like if you bought an orchard or a tonne of iron ore or something, then you'd have to know (and want to know) or learn how to manage an orchard, or have room to store the iron (and how do you stop it going rusty?)). What if you wanted to go somewhere else? You could take your gold with you, but I don't know about the other stuff; that'd be a bit more involved. Gold doesn't seem to give you any hassles. Unless you lose it. So really, everyone who produced more than they consumed could save their value in gold, if they wanted to. Actually, that's a good thing too, because then people who might not otherwise bother could produce more value than they need, because they can save the excess and use it later by buying and later selling some gold. Good for people who don't want hassles, but would like to save. Most other assets are going to require management, or they'll crap out eventually. The economy would be a bit more productive than it otherwise would, wouldn't it?

So, in a nutshell (presuming the preceding logic is sound), people put value into gold because they have confidence other people will give them value for that gold later, should they want to use it (the value) to eat, or keep warm, or light the dark etc, or because they have too much value and they just don't want it wasted. Gold is storing value for people. It is making present surplus value both durable and fungible for future use. Saving it. Seems fair; there appear to be willing buyers and willing sellers, so both must be getting something out of the transaction.

So gold appears to be backed by people and their willingness to trade useful stuff for it. Seems like people who produce surplus are confident that others will continue to produce surplus in the future and thus create a continuous demand for gold; either that or they are happy to make their surplus available to others and buying gold is just fun. Seems kind of like when you buy gold you are putting your trust in the market as a whole. That seems a bit different than when you buy a bond for example, because then you're just trusting whoever issued the bond. So with gold the whole market is your counterparty, so to speak.

The fact that gold is useless appears to make it useful. ! Really useful in fact, because it's encouraging the economy to grow and make more useful stuff, and minimising waste. Wouldn't that actually make the useful stuff cheaper, if there were more of it than otherwise? And it's helping people kinda secure their future, by being able to save for it, that's gotta help them worry less right? Get sick, or old, and you can't provide for yourself or your family or whatever and you could sell some gold, eh? Yield: peace of mind. What's that worth?

So how much will gold be worth later, if you want to sell? Shouldn't be too hard to figure out; it's just supply and demand.

Supply: newly mined gold, and old stock being sold. The flow of newly mined gold seems pretty static. Apparently all the low hanging fruit is long gone, so these days they're mostly mining leaner deposits and it's pretty slow going. Old stock. Well about 170,000 tonnes have been mined altogether, so I guess all of that could potentially be flow if everyone wanted to sell all their gold at the same time. It wouldn't be worth much then.

Tired of rambling, might come back to this later.