

Germany to Repatriate Some of Its Gold Reserves - uvdiv
http://www.nytimes.com/2013/01/17/business/global/german-central-bank-to-repatriate-gold-reserves.html?hp&_r=0

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nhaehnle
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.

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bitcartel
> Central banks could burst this bubble easily by selling off their gold
> reserves.

Maybe the bubble is in fiat currency?

Imagine in 1933 you had locked one ounce of gold in a box, and 35 dollar bills
in another box (that year, the gov valued gold at $35/oz, see:
<http://en.wikipedia.org/wiki/Executive_Order_6102>).

Unlock the box today. What would you rather have? 35 dollar bills or an ounce
of gold which is currently trading at $1,680 ?

Gold has been a store of value for thousands of years, while during that time,
paper currencies have come and gone.

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craigyk
I'd rather have invested that $35 into the stock market. Going by the dow
jones from 1933 to today, that $35 would be worth over $9,000. That's the
proper comparison to gold.

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bitcartel
The Dow Jones index changes over time, so to track the index properly you have
to buy and sell stocks all the time, just like index tracking funds do.

As a passive investment locked in a box, you would have had to purchase $35
worth of stock in 1933 and kept the stock certificate(s). Maybe there was a
mutual fund around at the time that tracked the Dow Jones.

Opening the box today, most of those companies (or funds) probably don't exist
anymore, so you wouldn't actually be able to sell your stocks for cash.

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jbooth
When you start adding conditions for what "counts" and "doesn't count", you're
probably not being impartial.

$35 turns into $600 from 1933-now, just from inflation. Invested in gold, it
gets double that, and in stocks, it gets 15X that. Those are the statistics on
the matter.

~~~
bitcartel
If you put 35 dollar bills in a box in 1933 and open it up today in 2013, you
still only have 35 dollar bills, physically in your hand.

You can look at the purchasing power of $35 in 1933 vs 2013, but you don't
have $600 physically in your hands to spend.

If anything, the purchasing power shows that paper bills have lost value
whereas gold has gained value. In 1933, $35 could buy you 1 ounce of gold,
whereas today's equivalent of $600 only buys you ~1/3 ounce.

My original post specifically talked about locking $35 in a box, so conditions
haven't changed. Also I'm not claiming that gold is the best investment over
time.

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sethist
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?

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chesh
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.

~~~
craigyk
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'.

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specialp
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.

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lispm
for free? Source?

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kbutler
From the article:

"The New York Fed stores the German gold without cost on the theory that the
presence of foreign gold supports the dollar’s status as the global reserve
currency."

~~~
lispm
Ah, thanks. I found that also in a German article.

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mars
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.

