Hi doma,
paper money is a proxy for the value of goods and services exchanged within the economy.
Underlying the paper is the value of things like computers, oil, bushels of wheat, music, gold, land, stocks - anything we exchange and think is worth something.
We allow paper to be used to count up the economic value of the unique things we exchange and to divide the value into convenient small units.
The way I understand it, the market values that paper in total against the amount of value within the economy. If the Fed issues new money beyond the growth in the economy, then the value of the paper will decrease relative to the value of the assets. If the value of assets decreases, then the relative value of the paper will increase. We let markets manage this process.
I see you are still stuck on the idea that the shiny metal is the only thing with any value. Things that are scarce and that people want will have a high value. That's simple economics. Since gold was scarce in the ancient world, it accrued a value. But people also valued other things just as they do today. Things like land, food and cattle.
I don't know where to go with this with you unless you can get a little different perspective on value. The cautionary tale of King Midas is surely sufficient to demonstrate that gold's value is a wee bit limited. You can't eat it or drink it. You can't run a car on it. It is scarce. People use it to make jewellery. Dat's about it.
It's a normal kind of asset, just like any other. Demand is high because a lot of folks see it as being a last chance saloon for value in a scary economy. But that will unwind in my view as the economy recovers. The really critical asset in this story recently is the value of land.
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