8 ms·

Germany to Repatriate Some of Its Gold Reserves

40 points by uvdiv 14y ago

sethist 14y ago
I just don't understand how it is productive to spend the amount of money necessarily to dig this stuff out of the ground only to stick it in some bank vault to go untouched for decades. Now people are arguing whose bank vault we will use to keep the stuff that we won't touch?
- alxndr 14y ago
  But...it creates jobs!
  - eagle9 14y ago
    :)
- exit 14y ago
  it simplifies playing a zero sum game. you don't see the utility of that?
- ghshephard 14y ago
  Two reasons: o In a currency crisis, Gold skyrockets in value. o No counter party risk. Also, CAPM theory suggests one can reduce their risk/reward ratio by diversifying into different asset classes. By holding some of your liquid reserves in gold, you reduce fiat risk (risk that a currency based on faith only will lose value). For those in HN interested in a straightforward way of owning and storing gold in Zurich/London/New York - I highly recommend bullionvault.com. It has a nice geeky multi-party audit system as well - so you know your Gold really is there.
  - pedrocr 14y ago
    On your two points: In a currency crisis gold is naturally more valuable, since the problem is with gold's replacement (currency), so you're basically saying "the central bank system has screwed up let's go back to gold". Holding currency has just as much counter party risk as holding gold. They're both currencies that themselves don't have counterparty risk. The institutions in which you keep gold or currency can be risky counterparties but that's the same in both cases. Your bullionvault example could just as well keep dollar bills in it's vaults. As for your CAPM point I'm a little out of my depth but I don't think it holds. Gold isn't really an asset as it's mostly useless, it's really more of a currency, with which you can buy assets. And I don't see why you'd get any risk improvement by holding currencies that you won't get by holding diversified portfolios of the actual productive assets (real estate, stocks, bonds, etc) that those currencies can buy. That of course assumes rational investors, but then so does CAPM itself.
    - fnordfnordfnord 14y ago
      >Gold isn't really an asset as it's mostly useless. You can trade it to Iran for some oil.
      - pedrocr 14y ago
        It can be useful as a currency as I mentioned. My point is that it's mostly useless in itself (for actual uses of the metal) as can be seen by the fact that we're perfectly happy keeping a lot of it locked away.
    - ghshephard 14y ago
      Currency has no counter party risk, but does have Fiat Risk. Your thread on gold not being an asset doesn't make sense for any common definition of asset, so I can't really respond. Gold isn't a currency, it's a commodity. Productive assets (Bonds) have counterparty risk, and stocks quite often have correlative performance to a currency crisis in the country that they exist. I.E. If the US Dollar crashes, odds are the various exchanges will take a beating. Gold is a tool in your portfolio, nothing more. Use it where it makes sense for you.
- pedrocr 14y ago
  Gold solves a coordination problem we no longer have. Societies need some form of hard to falsify currency to enable indirect trade, so you don't have to lug around your corn to go buy chickens. Gold is mostly useless, doesn't spoil, and there isn't very much of it on earth. So you can use gold to make some nice looking coins and everyone can relatively easily check they're real and can't just make more of it. The crappy side effect is as you mention that it creates a large incentive to go mine for gold. For the purposes of currency it would be nicer if all the gold was already mined. Today, with reputable central banks you don't need gold anymore. Gold's proponents usually mention that a gold standard would set a fixed money supply that can't be altered by a central banker. Yet if that's what you want you could just change the law to impose that rule on the central bank, just as you'd need to change the law to move to a gold standard. So the two approaches are really same, except the non-gold one doesn't create a bunch of digging jobs in a gold mine somewhere.
  - jbarham 14y ago
    > Today, with reputable central banks you don't need gold anymore. Quantitative easing (aka printing money) isn't doing much for the reputation of central banks...
    - pedrocr 14y ago
      You're confounding "gold as a way to implement currency" with "gold as a way to lock monetary policy". And that's so common I address it in the original comment: >Gold's proponents usually mention that a gold standard would set a fixed money supply that can't be altered by a central banker. Yet if that's what you want you could just change the law to impose that rule on the central bank, just as you'd need to change the law to move to a gold standard.
      - alexmat 14y ago
        Why bother changing the law when you can just change your medium of exchange. Much simpler to just trade in gold than to try to keep the Fed in check.
- notaddicted 14y ago
  A reason to hold gold instead of oil, bullets, bacon, or liquor is that gold is used to make jewelry. Since jewelry is purely a luxury, there isn't really some line that people cross where they have "enough jewelry", theoretically the appetite for gold is limitless ... at least when compared to our earthbound supplies.
  - pedrocr 14y ago
    The fraction of gold that's actually used (for jewelry or other industrial uses) is very very small. Gold's market value has everything to do with the perceived risk of holding currencies and basically nothing to do with supply and demand for it's actual uses. Hence why most of it is locked away in vaults, never to be used.
    - notaddicted 14y ago
      According to Wikipedia new gold production is consumed 50% by jewelry, 40% by investment, and 10% by industry. (http://en.wikipedia.org/wiki/Gold#Consumption http://en.wikipedia.org/wiki/Gold#Consumption)
      - pedrocr 14y ago
        Sure, but the value is over the total available, not the amount mined per year. I don't have the number now but I'm pretty sure most of the gold ever mined is today sitting in central bank vaults, we just keep mining small amounts to use as the central banks like to sit on their reserves.
        seanos 14y ago
        The estimated worth of the gold in jewellery privately owned in India alone (mainly by housewives) is estimated to be worth $600 billion. To put that in perspective, total US gold reserves are valued at around $420 billion. http://blogs.wsj.com/indiarealtime/2011/07/14/indias-600-billion-hidden-treasure/ http://blogs.wsj.com/indiarealtime/2011/07/14/indias-600-bil...
- chesh 14y ago
  The main reason is that paper money is the biggest ponzi scheme the world has every seen. Every government in the world is coming round to printing more and more of the stuff. We just don't realize how bad the situation is because we are used to comparing the value of our paper dollar with a paper Euro or Yen, and they have all been devalued. Gold cannot be printed ad infinitum. Each year roughly 2500 tons of the stuff is mined, which adds around 1.5% to the global above ground stock of gold. This 1.5% growth rate is declining, while the amount of new paper money that is created each year is increasing. Bottom line is it the only real measure of value left in the world.
  - danilocampos 14y ago
    ...Until a gold-rich asteroid gets towed into mining range.
  - ewang1 14y ago
    Haha, until we run out of the materials needed to print paper money...
  - craigyk 14y ago
    What you can trade for using your currency is what gives it value. At least IMO. In that case paper money is doing fine. The primary purpose of currency is too ease trade, not too keep score. As long as the value of paper money stays relatively stable over the short- to mid- term than it is doing it's job. 0-5% inflation a year is pretty stable, it's not going to have a large effect on when I chose to purchase things. In fact some inflation might be good to counteract the effect of technological advance: sure my money might be worth 5% 'less' a year from now, but I'll be able to buy something 50% 'better'.
- dageshi 14y ago
  Gold has value because there is generally plenty of willing supply and demand for it. The US dollar has value because it has plenty of supply and demand for it. Gold has certain attributes which make it very useful under extremely rare circumstances. But those circumstances can't be completely ruled out or discounted so we still have and use gold.
- wintersFright 14y ago
  [ 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.
specialp 14y ago
I was in the Federal Reserve gold vault a few weeks ago and you realize that gold is just a very heavy metal that is inconvenient to store and move around. The NY Fed keeps this gold for free, and having this gold in their vault is forgive the pun "as good as gold". Moving the gold is a political move that just costs a lot of real money.
- dgregd 14y ago
  As far I know, US government once confiscated gold http://en.wikipedia.org/wiki/Executive_Order_6102 http://en.wikipedia.org/wiki/Executive_Order_6102
  - wintersFright 14y ago
    yes they confiscated domestic gold. but confiscating another sovereign's would be an act of war. A lot of US treasuries held by Central Banks in reserve might suddenly go on sale and send interest rates sky high...destroying the USD. They would want to think twice on that.
    - deleted 14y ago
      [deleted]
    - mars 14y ago
      storing it where it belongs just adds a little bit of safety. i mean you never know, especially when considering the current world economics.
- lispm 14y ago
  for free? Source?
  - petemc_ 14y ago
    The article being discussed is one source.
  - kbutler 14y ago
nhaehnle 14y ago
It's interesting to note that a lot of gold (40% of annual production) is mined just so that it can be locked away somewhere, without any further utility derived from it. This is essentially speculative demand, so one could reasonably argue that gold is in a (many thousand years old) speculative bubble. Central banks could burst this bubble easily by selling off their gold reserves. It is of course very hard to judge how low that would drive the price of gold, but it seems rather clear that the "proper" price of gold should be much lower than it is today. Today, gold isn't used much for industrial production. But part of the reason for that is actually the price of gold. Gold does have useful properties as a chemical element, but engineers specifically design their processes so that they don't need too much of it. How much more use for society could be gotten out of gold in actual production, if the gold price bubble were burst by central banks selling off their reserves, making gold more affordable for industrial purposes? This line of thought is dual to the criticism against hedge funds participating in commodity trading. Once hedge funds create artificial demand for certain commodities such as rare earths by actually storing them in newly built warehouses, the price for those commodities could be driven through the roof, with nasty side cost-push inflation as a side-effect.
- dgregd 14y ago
  > Central banks could burst this bubble easily by selling off their gold reserves Some central banks already sold their gold http://en.wikipedia.org/wiki/Sale_of_UK_gold_reserves,_1999-2002 http://en.wikipedia.org/wiki/Sale_of_UK_gold_reserves,_1999-...
  - bitcartel 14y ago
    Revealed: why Gordon Brown sold Britain's gold at a knock-down price (http://blogs.telegraph.co.uk/finance/thomaspascoe/100018367/revealed-why-gordon-brown-sold-britains-gold-at-a-knock-down-price/ http://blogs.telegraph.co.uk/finance/thomaspascoe/100018367/...) "When Brown decided to dispose of almost 400 tonnes of gold between 1999 and 2002, he did two distinctly odd things. First, he broke with convention and announced the sale well in advance, giving the market notice that it was shortly to be flooded and forcing down the spot price. This was apparently done in the interests of “open government”, but had the effect of sending the spot price of gold to a 20-year low, as implied by basic supply and demand theory. Second, the Treasury elected to sell its gold via auction. Again, this broke with the standard model. The price of gold was usually determined at a morning and afternoon "fix" between representatives of big banks whose network of smaller bank clients and private orders allowed them to determine the exact price at which demand met with supply. The auction system again frequently achieved a lower price than the equivalent fix price. It seemed almost as if the Treasury was trying to achieve the lowest price possible for the public’s gold. It was."
mars 14y ago
they agreed on shipping it back to germany within the next s-e-v-e-n years. why is that? this sounds kinds dodgy to me - as if the banks who "might" store it would have to earn it first. btw: france once transported it's gold reserves back to france in a nuclear submarine - classy.
deleted 14y ago
[deleted]

40 points by uvdiv 14y ago

I just don't understand how it is productive to spend the amount of money necessarily to dig this stuff out of the ground only to stick it in some bank vault to go untouched for decades. Now people are arguing whose bank vault we will use to keep the stuff that we won't touch?

alxndr 14y ago
But...it creates jobs!
- eagle9 14y ago
  :)
exit 14y ago
it simplifies playing a zero sum game. you don't see the utility of that?
ghshephard 14y ago
Two reasons: o In a currency crisis, Gold skyrockets in value. o No counter party risk. Also, CAPM theory suggests one can reduce their risk/reward ratio by diversifying into different asset classes. By holding some of your liquid reserves in gold, you reduce fiat risk (risk that a currency based on faith only will lose value). For those in HN interested in a straightforward way of owning and storing gold in Zurich/London/New York - I highly recommend bullionvault.com. It has a nice geeky multi-party audit system as well - so you know your Gold really is there.
- pedrocr 14y ago
  On your two points: In a currency crisis gold is naturally more valuable, since the problem is with gold's replacement (currency), so you're basically saying "the central bank system has screwed up let's go back to gold". Holding currency has just as much counter party risk as holding gold. They're both currencies that themselves don't have counterparty risk. The institutions in which you keep gold or currency can be risky counterparties but that's the same in both cases. Your bullionvault example could just as well keep dollar bills in it's vaults. As for your CAPM point I'm a little out of my depth but I don't think it holds. Gold isn't really an asset as it's mostly useless, it's really more of a currency, with which you can buy assets. And I don't see why you'd get any risk improvement by holding currencies that you won't get by holding diversified portfolios of the actual productive assets (real estate, stocks, bonds, etc) that those currencies can buy. That of course assumes rational investors, but then so does CAPM itself.
  - fnordfnordfnord 14y ago
    >Gold isn't really an asset as it's mostly useless. You can trade it to Iran for some oil.
    - pedrocr 14y ago
      It can be useful as a currency as I mentioned. My point is that it's mostly useless in itself (for actual uses of the metal) as can be seen by the fact that we're perfectly happy keeping a lot of it locked away.
  - ghshephard 14y ago
    Currency has no counter party risk, but does have Fiat Risk. Your thread on gold not being an asset doesn't make sense for any common definition of asset, so I can't really respond. Gold isn't a currency, it's a commodity. Productive assets (Bonds) have counterparty risk, and stocks quite often have correlative performance to a currency crisis in the country that they exist. I.E. If the US Dollar crashes, odds are the various exchanges will take a beating. Gold is a tool in your portfolio, nothing more. Use it where it makes sense for you.
pedrocr 14y ago
Gold solves a coordination problem we no longer have. Societies need some form of hard to falsify currency to enable indirect trade, so you don't have to lug around your corn to go buy chickens. Gold is mostly useless, doesn't spoil, and there isn't very much of it on earth. So you can use gold to make some nice looking coins and everyone can relatively easily check they're real and can't just make more of it. The crappy side effect is as you mention that it creates a large incentive to go mine for gold. For the purposes of currency it would be nicer if all the gold was already mined. Today, with reputable central banks you don't need gold anymore. Gold's proponents usually mention that a gold standard would set a fixed money supply that can't be altered by a central banker. Yet if that's what you want you could just change the law to impose that rule on the central bank, just as you'd need to change the law to move to a gold standard. So the two approaches are really same, except the non-gold one doesn't create a bunch of digging jobs in a gold mine somewhere.
- jbarham 14y ago
  > Today, with reputable central banks you don't need gold anymore. Quantitative easing (aka printing money) isn't doing much for the reputation of central banks...
  - pedrocr 14y ago
    You're confounding "gold as a way to implement currency" with "gold as a way to lock monetary policy". And that's so common I address it in the original comment: >Gold's proponents usually mention that a gold standard would set a fixed money supply that can't be altered by a central banker. Yet if that's what you want you could just change the law to impose that rule on the central bank, just as you'd need to change the law to move to a gold standard.
    - alexmat 14y ago
      Why bother changing the law when you can just change your medium of exchange. Much simpler to just trade in gold than to try to keep the Fed in check.
notaddicted 14y ago
A reason to hold gold instead of oil, bullets, bacon, or liquor is that gold is used to make jewelry. Since jewelry is purely a luxury, there isn't really some line that people cross where they have "enough jewelry", theoretically the appetite for gold is limitless ... at least when compared to our earthbound supplies.
- pedrocr 14y ago
  The fraction of gold that's actually used (for jewelry or other industrial uses) is very very small. Gold's market value has everything to do with the perceived risk of holding currencies and basically nothing to do with supply and demand for it's actual uses. Hence why most of it is locked away in vaults, never to be used.
  - notaddicted 14y ago
    According to Wikipedia new gold production is consumed 50% by jewelry, 40% by investment, and 10% by industry. (http://en.wikipedia.org/wiki/Gold#Consumption http://en.wikipedia.org/wiki/Gold#Consumption)
    - pedrocr 14y ago
      Sure, but the value is over the total available, not the amount mined per year. I don't have the number now but I'm pretty sure most of the gold ever mined is today sitting in central bank vaults, we just keep mining small amounts to use as the central banks like to sit on their reserves.
      - seanos 14y ago
        The estimated worth of the gold in jewellery privately owned in India alone (mainly by housewives) is estimated to be worth $600 billion. To put that in perspective, total US gold reserves are valued at around $420 billion. http://blogs.wsj.com/indiarealtime/2011/07/14/indias-600-billion-hidden-treasure/ http://blogs.wsj.com/indiarealtime/2011/07/14/indias-600-bil...
chesh 14y ago
The main reason is that paper money is the biggest ponzi scheme the world has every seen. Every government in the world is coming round to printing more and more of the stuff. We just don't realize how bad the situation is because we are used to comparing the value of our paper dollar with a paper Euro or Yen, and they have all been devalued. Gold cannot be printed ad infinitum. Each year roughly 2500 tons of the stuff is mined, which adds around 1.5% to the global above ground stock of gold. This 1.5% growth rate is declining, while the amount of new paper money that is created each year is increasing. Bottom line is it the only real measure of value left in the world.
- danilocampos 14y ago
  ...Until a gold-rich asteroid gets towed into mining range.
- ewang1 14y ago
  Haha, until we run out of the materials needed to print paper money...
- craigyk 14y ago
  What you can trade for using your currency is what gives it value. At least IMO. In that case paper money is doing fine. The primary purpose of currency is too ease trade, not too keep score. As long as the value of paper money stays relatively stable over the short- to mid- term than it is doing it's job. 0-5% inflation a year is pretty stable, it's not going to have a large effect on when I chose to purchase things. In fact some inflation might be good to counteract the effect of technological advance: sure my money might be worth 5% 'less' a year from now, but I'll be able to buy something 50% 'better'.
dageshi 14y ago
Gold has value because there is generally plenty of willing supply and demand for it. The US dollar has value because it has plenty of supply and demand for it. Gold has certain attributes which make it very useful under extremely rare circumstances. But those circumstances can't be completely ruled out or discounted so we still have and use gold.
wintersFright 14y ago
[ 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.

specialp 14y ago

I was in the Federal Reserve gold vault a few weeks ago and you realize that gold is just a very heavy metal that is inconvenient to store and move around. The NY Fed keeps this gold for free, and having this gold in their vault is forgive the pun "as good as gold". Moving the gold is a political move that just costs a lot of real money.

dgregd 14y ago
As far I know, US government once confiscated gold http://en.wikipedia.org/wiki/Executive_Order_6102 http://en.wikipedia.org/wiki/Executive_Order_6102
- wintersFright 14y ago
  yes they confiscated domestic gold. but confiscating another sovereign's would be an act of war. A lot of US treasuries held by Central Banks in reserve might suddenly go on sale and send interest rates sky high...destroying the USD. They would want to think twice on that.
  - deleted 14y ago
    [deleted]
  - mars 14y ago
    storing it where it belongs just adds a little bit of safety. i mean you never know, especially when considering the current world economics.
lispm 14y ago
for free? Source?
- petemc_ 14y ago
  The article being discussed is one source.
- kbutler 14y ago

nhaehnle 14y ago

It's interesting to note that a lot of gold (40% of annual production) is mined just so that it can be locked away somewhere, without any further utility derived from it. This is essentially speculative demand, so one could reasonably argue that gold is in a (many thousand years old) speculative bubble. Central banks could burst this bubble easily by selling off their gold reserves. It is of course very hard to judge how low that would drive the price of gold, but it seems rather clear that the "proper" price of gold should be much lower than it is today. Today, gold isn't used much for industrial production. But part of the reason for that is actually the price of gold. Gold does have useful properties as a chemical element, but engineers specifically design their processes so that they don't need too much of it. How much more use for society could be gotten out of gold in actual production, if the gold price bubble were burst by central banks selling off their reserves, making gold more affordable for industrial purposes? This line of thought is dual to the criticism against hedge funds participating in commodity trading. Once hedge funds create artificial demand for certain commodities such as rare earths by actually storing them in newly built warehouses, the price for those commodities could be driven through the roof, with nasty side cost-push inflation as a side-effect.

dgregd 14y ago
> Central banks could burst this bubble easily by selling off their gold reserves Some central banks already sold their gold http://en.wikipedia.org/wiki/Sale_of_UK_gold_reserves,_1999-2002 http://en.wikipedia.org/wiki/Sale_of_UK_gold_reserves,_1999-...
- bitcartel 14y ago
  Revealed: why Gordon Brown sold Britain's gold at a knock-down price (http://blogs.telegraph.co.uk/finance/thomaspascoe/100018367/revealed-why-gordon-brown-sold-britains-gold-at-a-knock-down-price/ http://blogs.telegraph.co.uk/finance/thomaspascoe/100018367/...) "When Brown decided to dispose of almost 400 tonnes of gold between 1999 and 2002, he did two distinctly odd things. First, he broke with convention and announced the sale well in advance, giving the market notice that it was shortly to be flooded and forcing down the spot price. This was apparently done in the interests of “open government”, but had the effect of sending the spot price of gold to a 20-year low, as implied by basic supply and demand theory. Second, the Treasury elected to sell its gold via auction. Again, this broke with the standard model. The price of gold was usually determined at a morning and afternoon "fix" between representatives of big banks whose network of smaller bank clients and private orders allowed them to determine the exact price at which demand met with supply. The auction system again frequently achieved a lower price than the equivalent fix price. It seemed almost as if the Treasury was trying to achieve the lowest price possible for the public’s gold. It was."

mars 14y ago

they agreed on shipping it back to germany within the next s-e-v-e-n years. why is that? this sounds kinds dodgy to me - as if the banks who "might" store it would have to earn it first. btw: france once transported it's gold reserves back to france in a nuclear submarine - classy.

deleted 14y ago

[deleted]