
Where Is Germany's Gold? - coreymgilmore
http://www.bloomberg.com/news/features/2015-02-05/germany-s-gold-repatriation-activist-peter-boehringer-gets-results
======
tdees40
So here's how this works. Gold bugs are big fans of buying gold. They have
lots of gold. Their narrative of the financial system is that gold is the
uber-asset that all other assets must be denominated in, and that fiat
currency is doomed to collapse. The massive run-up of gold prices during the
financial crisis played into this narrative, and despite the fact that
mainstream economists, politicians, bankers, etc. still thought of it as a
"barbarous relic" (Keynes), gold-bugs saw it as the key to a prosperous
economy.

So now, gold prices have been weak for a few years, so they have to come up
with a new narrative. And that narrative is _global conspiracy_. So you get
groups like GATA [1] and Zero Hedge [2] pushing various stories about how gold
is being squirreled away somewhere mysterious, or prices are being suppressed
by faceless multinationals or what-have-you. Maybe it's true! I don't know,
but there's never really been any evidence, and it just sounds like someone
justifying a failed investment thesis.

[1] www.gata.org [2] zerohedge.com

~~~
carsongross
It's always good to think about what evidence would convince you that the
other side has a point.

I lean towards the side that thinks that the central and money center banks
(not faceless multinationals) are suppressing the price of gold via
fractionally-reserved lending of physical gold. What would convince me that
this is not the case would be a comprehensive audit of the Federal Reserve's
books and gold holdings.

You?

~~~
tdees40
I think a dinosaur lives in the subways under Manhattan. I would be convinced
otherwise only by a full audit of all subway tunnels conducted using a
dinosaur scanner (which someone will need to invent).

But seriously, there are lots of things that are hard to prove wrong, but
that's hardly a good reason to believe them. In your case, what motive would
the Fed have? Has an employee of the Fed (or any other central bank) ever
blown the whistle on this massive international conspiracy? If there's no good
reason to think something, there really isn't much good reason to spend time
proving it wrong.

~~~
carsongross
Well, the Federal Reserver produces a paper currency, the dollar, and gold has
historically been a competitor of paper currencies. So it makes sense that the
Fed would not want competition in currencies, and would attempt to both
disparage and devalue it.

The Federal Reserve is also intimately bound up in fractionally reserved
expansion of the paper currency, so it is reasonable to assume that they might
use the same basic technique with gold. And that, in fact, is the historical
origin of banking, in the modern, leveraged sense: gold assayers began loaning
out gold on a fractionally reserved basis, allowing them to collect interest
beyond their core assets. Worked great until people ran on them.

So I assert that it is less irrational to believe that there is a possibility
that central banks engage in manipulation of gold prices than it is to believe
that there is a dinosaur living in the subway under manhattan.

YMMV.

~~~
tdees40
If the Fed were lending gold on a fractional reserve basis, a huge number of
people would know about it: employees of the Fed, bankers, counter-parties.
Why are all of them keeping silent? Why does the Fed endear such intense (some
would say insane) loyalty? How do they cover the tracks of this huge operation
(both in terms of people and dollars)?

Also, to believe this you have to postulate that:

1) Employees of the Fed are personally concerned about gold destroying the
dollar.

2) They are willing to do something illegal (or at least unauthorized) to
protect the dollar.

3) So they came up with a complicated, elaborate plan to manipulate the price
of gold down that perfectly plays into the narrative of gold bugs (note the
nefarious fractional reserve lending).

It's not impossible!

~~~
carsongross
1) Yes.

2) People involved in the banking system, by definition, are willing to
fractionally reserve something

3) Nothing particularly complicated, same fence that fractionally reserved
frauds have been running for a thousand years.

_shrug_

------
bayesianhorse
It's hard to judge what is more secure... a promise of essentially the U.S.
government that the gold belongs to us (Germans), and would be available for
sale, or storing the gold in Germany, where it can be seized by an invader,
and maybe even ordinary criminals or corruptions. And it would have to be
moved again to be sold in bulk, because once Germany needs to sell vast
amounts of gold, nobody would trust Germany to just write IOUs.

Times have changed. Invasion has become unlikely, despite Germany having
borders to several foreign countries, with a history of centuries of conflict
in Europe. Even corruption is unlikely today to take away significant portions
of such a gold depot.

Still, the only purpose of this gold is as a currency, and as such it doesn't
matter that much if it is stored in Germany or in some country you would
probably have to trust anyway to make use of it.

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ceejayoz
The recent Bloomberg redesign is truly bizarre. Microsoft WordArt-esque text
popping out as you scroll...

~~~
Grazester
It's terrible is what is it. I have started keeping away from the site because
of it unfortunately. On a smaller screen laptop I find that I have to scroll
more to catch roughly the same number of headline I use to previously

~~~
dragontamer
Despite your downvotes, I agree with you.

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im2w1l
To be extremely cynical and pessimist: I guess it makes sense to bring the
gold home in time for WW 3

(not only Germany is bringing their gold home, from the article France,
Netherlands are doing the same)

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mtmail
A nice Bill Nye science geek type video from inside the gold vault of the Bank
of England.
[https://www.youtube.com/watch?v=CTtf5s2HFkA](https://www.youtube.com/watch?v=CTtf5s2HFkA)

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raintrees
So if they are melting down bars and reforming them, that should put to rest
the theory that The Federal Reserve's bars have been tampered with and are
just gold-plated tungsten... right?

The tungsten substitutes are just part of "normal" dodgy street
counterfeiting? [http://www.businessinsider.com/tungsten-filled-gold-bars-
fou...](http://www.businessinsider.com/tungsten-filled-gold-bars-found-in-new-
york-2012-9)

------
mschuster91
Serious question: what exactly is the value of gold? I mean, with other rare
metals as palladium or titanium their value can be inferred from industrial
consumption, but what is the actual usage of gold and silver other than for
filling teeth, making jewelry (we have had artificial "prices" with the
diamond cartels) and trace amounts used in electronics?

~~~
AnimalMuppet
It's an alternative to paper currencies. How much that's worth to you depends
on how much you distrust paper currencies. How much that's worth to the global
economy depends on how much the global economy collectively distrusts the
money supply (and the central bankers and/or politicians that control the
money supply).

This is a big part of why the price of gold moves the way it does. It's not
that the value of currencies changes compared to gold, which is the unmoving
reference point. Instead, what's going on is that peoples' trust in paper
currencies fluctuates, which changes their desire to hold gold as an
alternative.

~~~
oafitupa
It's not an "alternative", it's a store of value by its own merit, and has
been so for thousands of years, while paper money is pretty recent and is by
no means a good store of value or even a good medium of exchange, with the
surge of digital money.

~~~
AnimalMuppet
Paper money, in most countries in modern times, has been a _more_ stable store
of value than gold. Consider, for example, the price of gold over the last 10
years - the run up to $1700, the fall below $1200, the small recent recovery.
Has that been because of the change in value of the dollar? No, _most_ of that
change is in the value of gold, not in the value of the dollar. That's not a
very stable store of value. Even the Swiss Franc has been more stable, despite
the recent shock.

Paper money has mostly been a more stable store of value than gold... except
when it hasn't. When the paper currency becomes toilet paper, gold looks like
the perfect store of value.

The modern role of gold, then, is more insurance than it is a store of value.
(Or you could think of it as a short on currency.)

------
felipeerias
Here is how gold works: it doesn't matter if it is really there, as long as
everybody agrees that it is there.

------
JacobAldridge
I don't see the benefit in having all of your country's gold reserves stored
in your country?

Firstly, there's the the invasion risk the article referenced, to which I'll
add internal political division (talking generally, not just about Germany,
although 1989 was not that long ago in geopolitical time). Having all of your
gold in the central bank sounds to me like having all of your eggs in one
basket, waiting to be plundered.

But there's also the functional use of the gold. While I can't imagine these
reserves being spent anytime soon, in the wider 50-100 year timeframe it's
more likely that they may be needed for emergency purchases or as security. In
that situation, having at least some of your reserves offshore, particularly
in the US which is likely to be your wartime creditor based on history, makes
more sense than having to ship it back in a time of crisis.

Repatriating it all just sounds like paranoia or nationalism to me.

TLDR: A good backup plan for your data involves an offsite copy. Why not the
same with backup gold reserves?

~~~
geofft
The offsite copy involves trustworthy people, and unlike with data, there's no
client-side encryption for gold.

If you do believe that the NY Fed, the Bank of England, and the Bank of France
are "above reproach," then your argument is absolutely correct. But if you
can't be sure of that—and this article is definitely attempting to cast doubt
on that—then there's the usual argument about self-hosting. Amazon's probably
a better sysadmin than most people are, but you're the only sysadmin that you
have meaningful control over the competence of.

------
umsm
This story reminded me of an NPR story about the gold standard:

[http://www.npr.org/blogs/money/2015/01/16/376967946/episode-...](http://www.npr.org/blogs/money/2015/01/16/376967946/episode-253-gold-
standard-r-i-p)

------
sjwright
The purpose of money is to facilitate trade and represent a relatively stable
yardstick for valuation, not to be an investment. You don't need a gold-backed
currency in order to invest in gold -- just invest in gold.

------
dikaiosune
I thought all of the German gold was in the Philippines.

Disclaimer: I'm currently reading Cryptonomicon. It's a history book, right?

~~~
ovi256
Yes, but not of our universe.

Amazing book, by the way. I would also highly recommend the whole Baroque
cycle.

~~~
groby_b
The Baroque cycle? Only if you thought Cryptonomicon was regretfully short,
and the final chapter was the crowning achievement of Stephensons writing.

Otherwise, I'd read pre-Cryptonomicon Stephenson.

~~~
dredmorbius
_The Baroque Cycle_ was a _lot_ of heavy chewing, but it was ultimately a
pretty good story, and I was sad to come to the end of it. It's also, along
with _Cryptonomicon_ , one of the more interesting explorations of the world
of money and finance I've found.

You might also enjoy _REAMDE_ which it a bit faster-paced. I happened to enjoy
_Anathem_ as well, though that was also a bit of a slog. It _did_ have a
resolution though. And protractor.

~~~
groby_b
Read all but Anathem. I'm still convinced Cryptonomicon is the pinnacle of his
writing, and it's downhill from there. The story in Baroque Cycle was great,
but good god, that thing needed an editor to do some serious cutting.

REAMDE was quick and entertaining, but it was the equivalent of a Tom Clancy
novel. Or, fine, Michael Crichton.

------
Htsthbjig
qui tenet teneat, qui dolet doleat: "he who holds may go on holding, and he
who complains may go on complaining".

"possession is nine tenths of the law" as is currently said."

------
oafitupa
Time for plan Bitcoin.

------
jwcacces
Holy pop-out words Batman!

~~~
scott_karana
Yes, and I wish they popped out earlier... I kept having to scroll back to
read them after I'd passed the gap.

------
lisa_henderson
Whenever I find myself in a conversation with a goldbug, and they complain
about something like "the craziness of unbacked monetary systems" I say "I
like your shirt. I will give you $500 for that shirt." (This assumes the shirt
is clearly worth less than $500.) If they ask why I make such an offer, I ask
if they would accept such an offer. If they suggest they would, then I ask why
they would accept such an offer. If they think my "unbacked" $500 is crazy,
why would they take the deal? The shirt is a real physical object, and the
fact that it has value to them is demonstrated by the fact that they are
wearing it. The $500 in paper money is to them "a fiction", as it says in the
article. So why would they take a fiction over a real shirt that that gives
them real value?

This rarely changes anyone's mind (few people ever change their minds about
issues regarding money) but I hope I can at least raise the contradiction to
the top of their minds. All currencies are backed by our willingness to accept
them, and that is the only backing that any currency ever needs.

~~~
wolfgke
I'm not a goldbug, but I'd answer to

> So why would they take a fiction over a real shirt that that gives them real
> value?

Because they can nearly immediately exchange the $500 (fiction) into something
of real value (gold).

~~~
geofft
But that would then imply that the five-hundred-dollar bill has value, because
it can be exchanged reliably and easily for value.

The goldbugs, as far as I know, don't favor gold because it's shiny; they
favor it because it's physical and it's historically been popular in so many
cultures as a medium of exchange for things of real, inherent value (food,
labor, housing, etc.). I think a definition of "value" that roots gold as
having value because it's gold would be so self-referential as to be useless.

~~~
wolfgke
> But that would then imply that the five-hundred-dollar bill has value,
> because it can be exchanged reliably and easily for value.

No this is IMHO no valid implication. Say, goldbugs don't believe that money
is something other than fiction. But they do believe that at least for the
next few days this fiction will not break down in the society: This is enough
time to buy gold. But they are not sure how much longer the "illusion" will
hold up (say, for a month?).

So the right question to ask (for the goldbug) is "only" what will happen
earlier:

a) The money illusion breaks down? or b) I've converted the earned money into
gold?

~~~
geofft
OK, fair. You're effectively defining "value" as "can be exchanged reliably
and quickly for other things with/requiring value _indefinitely_ ". So the
goldbug assumption is that there's a constant and nontrivial risk of people no
longer accepting fiat money in the near term, but there is little to no risk
of people not accepting gold. I think we can dispute the data informing this
worldview, but that's a self-consistent worldview. Thanks.

~~~
AnimalMuppet
There have been historical incidents where that worldview was correct. To say
that such circumstances will never occur again seems optimistic. (To say that
they will occur as soon or as often as the goldbug expects seems
unrealistically pessimistic.)

