The Real Story of Gold

[deisik]

The last credible audit of the gold at Fort Knox (the US gold) was carried out in 1953, that is more than 60 years ago...

The last complete audit was in 1953, but partial audits were conducted several times after that. For example, a partial audit in 1986 covered around 97% of the government owned gold held in Fort Knox. That said, only around half of all the American gold is stored in Fort Knox. Out of the 7,716 tonnes of gold being held by the United States Mint, some 4,583 tonnes is being held at Fort Knox. The remainder is being held at Denver (1,364 tonnes) and West Point (1,682 tonnes).

https://www.fiscal.treasury.gov/fsreports/rpt/goldRpt/current_report.htm

It is an official story, lol. But there are no audit reports from that time. The US government is said to have lost those reports (for the audits held in between 1974-1986), wtf

Great thread, lots of useful information here that I did not previously know, and I follow gold closely.  Clearly gold is a BIG subject.

I believe that an "Audit of US National Gold" would cost peanuts, relatively speaking.  Hell, even I could put a team together to do a proper audit (that would include several kinds of specialists like metallurgists, testing equipment, auditors & accountants, statisticians, security, credible representatives from the press, etc.) and do a reasonably good job, for, say $5,000,000 (it would cost, but $5 million is PEANUTS vs. the value of the gold we supposedly have).

That is the question, wtf. Part of that gold had evidently been sold to France (well, exchanged for the US dollars), and a few other smart govts in the 60s. And you guess, France is now the second largest holder of gold...

[RealBitcoin]

I think if you really categorize precious metals as money, then I think only silver is a real "precious metal" money.

Gold still suffers from lack of divisibility which is a core property of money. Prices are generally relatively too low for gold, so this makes trade very difficult with standardized gold coins or gold cubes.

So for everyday goods standardized silver coins, cubes or rounds are a better physical "money".

Gresham's Law

I`m not saying gold=silver, because it clearly is not equal.

But at current silver/gold rates, you can see that from a healthy 20:1 ratio the ratio now is over 60.

So just from an investment standpoint, if the precious markets kickoff, you could make a bigger ROI with silver, than with gold.

[BobK71]

Gold (or any other metal) may not be a perfect monetary system, but given the nature of the elites that humanity must deal with, it may be humanity's best hope.  With the possible exception of Bitcoin, of course.

Hi I want to share my personal opinion about this. The problem here imo lies in the majority of the population don't know really well how money works in our economy.

Thanks for a thoughtful response.  I agree that most people don't really understand money (and its relationship to the economy.)

What makes a currency a source of prosperity?

We would certainly like currency to support prosperity, but in my opinion, trying to control currency to bring about prosperity is exactly equivalent to the argument for economic central planning that if we don't control food production, the population will starve.

In the rare modern examples of money that was not controlled by the state, i.e. the Italian Renaissance and the Scottish free banking era, there was great prosperity.  When money and finance were left to market forces, there was also enough credit and financial innovation to support economic growth.  The difference was that there was no artificial (government-driven) support for debt, so lenders took the full hit when borrowers couldn't repay.  As a result, lenders were careful and there were none of the bubbles and financial crises we see today.

Must ease the transaction of assets: for that it must be easily accesible, used worldwide by any person and be easily exchanged (gold does not fit in this rule since it has a limited quantity)

I think the key issue here is not limited quantity (which also applies to Bitcoin)) but fungeability (divisibility.)  If gold becomes mainstream money, the market should provide 100% reserve gold banking that allows depositors to transact with electronic gold.  This would solve the problem you describe.

Its market capitalization, ie total volume of currency, and its rate of issuing by each country or entity must be tied to some form of quantifiable asset owned by the agent wanting to issue the currency...

....For that reason it is better to establish an inventory of the total of resources, enterprises and industries available to each country or corporation as a mean to establish its assets. Any other way is opening the door for speculation and repeat past mistakes. What leads me to my next point.

This is good in theory and in an ideal world.  But the elites of this world don't support such an ideal.  The amounts of dollars and closely related assets far outstrip any conceivable economic output of the US, at current prices (and the same could have been said about the issuance of paper sterling by Britain when it was dominant.)  The reason is that issuance of money is an easy way to get "free" wealth and power, and to "solve" problems, for the elites, and no human being has proved to be able to resist the temptation to over-issue money.

While your idea is theoretically sound, there is no practical way to set up incentives to implement it.  So we are now left with the second-best option, which is a limited-supply currency that no one can expand.

Given that there's no practical and ethical way to tie the quantity of money to real economic output, what medium money takes becomes really pretty arbitrary.  I would agree that this facilitates speculation initially, but the steady state should see convergence to some standard with an ethical distribution of wealth.  (If South Africa doesn't produce much real wealth, eventually, most of the diamonds would go to other countries and S. Africans would have to work for a living.)

Must not be object of speculation: as I mentioned before when you tie the market cap to an accurate measure of a country assets you can't create artificial scarcities or flood the market with stocks to drive the price down (in this case the trackeability helps to fight this as well). You know something is wrong in the market when you can buy contracts for several tons of aluminum when you aren't going to use that metal for anything productive, just to speculate on the price. Is famous the story of Wall Street brokerage firm that bought several thousands heads of cattle to speculate on their price but forgot to sell them and they ended paying more than what they invested to rent a place to store the cattle and feed them. To avoid speculation a currency with a trackeable source is specially useful since it allows to know if the buyer is an enterprise in need of the resource or a speculative party. Gold is difficult to track and our paper money can be tracked but needs intervention by the government. Some cryptocurrencies allow a easier tracking by normal citizens and even its automatization and implementation of more security measures as they are open source and constantly evolving, adapting to the new needs of the population.

Speculators have an incentive to be right, since they lose money if they are wrong.  Thus, they serve a socially-useful purpose by correcting bad market signals (and especially those sent out by governments to confuse the public.)  For example, speculators in gold today are probably responsible for the US not issuing even more money (and thus destabilizing the world economy more.)  When too many people want gold, it becomes difficult for the authorities to issue too much money and still keep gold prices down.

Traceability also has both pros and cons.  Governments in modern times have, most of the time, engaged in some degree of financial repression.  (A mild form is suppressing interest rates while issuing assets to drive inflation higher than interest -- thus making savers lose wealth automatically by staying in safe assets; a severe form would be capital controls as practised by China to stop savers dumping yuan to get into dollars, at present.)  While traceability helps fight crime, it also helps financial repression, which ultimately helps the elites temporarily by propping up asset values, but also makes the eventual crash worse.

[bitgolden]

Very much interested information from this thread. Hopefully the OP got his answer.

[wxa7115]

I think if you really categorize precious metals as money, then I think only silver is a real "precious metal" money.

Gold still suffers from lack of divisibility which is a core property of money. Prices are generally relatively too low for gold, so this makes trade very difficult with standardized gold coins or gold cubes.

So for everyday goods standardized silver coins, cubes or rounds are a better physical "money".

Gresham's Law

I`m not saying gold=silver, because it clearly is not equal.

But at current silver/gold rates, you can see that from a healthy 20:1 ratio the ratio now is over 60.

So just from an investment standpoint, if the precious markets kickoff, you could make a bigger ROI with silver, than with gold.

I agree with RealBitcoin, silver has been the money most widely used throughout history among the 2 precious metals, and about the ROI, that is something that I agree as well, one of the reasons for that is that most uses of gold actually preserve gold (examples, jewelry, coinage, etc) while a significant amount of the industrial uses of silver, destroy it. (or make it very difficult to recover)

[deisik]

I think if you really categorize precious metals as money, then I think only silver is a real "precious metal" money.

Gold still suffers from lack of divisibility which is a core property of money. Prices are generally relatively too low for gold, so this makes trade very difficult with standardized gold coins or gold cubes.

So for everyday goods standardized silver coins, cubes or rounds are a better physical "money".

Gresham's Law

I`m not saying gold=silver, because it clearly is not equal.

But at current silver/gold rates, you can see that from a healthy 20:1 ratio the ratio now is over 60.

So just from an investment standpoint, if the precious markets kickoff, you could make a bigger ROI with silver, than with gold.

I agree with RealBitcoin, silver has been the money most widely used throughout history among the 2 precious metals, and about the ROI, that is something that I agree as well, one of the reasons for that is that most uses of gold actually preserve gold (examples, jewelry, coinage, etc) while a significant amount of the industrial uses of silver, destroy it. (or make it very difficult to recover)

Silver is bad money while gold is good money. The bad money drives out the good money from circulation. That's why silver had been more widely used than gold through history. People spent silver but saved gold specie...

[OROBTC]

I think if you really categorize precious metals as money, then I think only silver is a real "precious metal" money.

Gold still suffers from lack of divisibility which is a core property of money. Prices are generally relatively too low for gold, so this makes trade very difficult with standardized gold coins or gold cubes.

So for everyday goods standardized silver coins, cubes or rounds are a better physical "money".

Gresham's Law

I`m not saying gold=silver, because it clearly is not equal.

But at current silver/gold rates, you can see that from a healthy 20:1 ratio the ratio now is over 60.

So just from an investment standpoint, if the precious markets kickoff, you could make a bigger ROI with silver, than with gold.

I agree with RealBitcoin, silver has been the money most widely used throughout history among the 2 precious metals, and about the ROI, that is something that I agree as well, one of the reasons for that is that most uses of gold actually preserve gold (examples, jewelry, coinage, etc) while a significant amount of the industrial uses of silver, destroy it. (or make it very difficult to recover)

Silver is bad money while gold is good money. The bad money drives out the good money from circulation. That's why silver had been more widely used than gold through history. People spent silver but saved gold specie...

I'll also mention another thing.  Maybe it's psychological?

Once most people who have lots of experience with both PMs, you tend to see that most gradually come to like gold better.  They hold onto the gold coin, preferring to spend the silver ones.

If I ever have to spend any of my PMs, I will spend my silver first, no matter what the Au:Ag ratio is.

There seems to be some fairly universal attraction of humankind to gold.  Maybe that's from the very ancient past...

[deisik]

I'll also mention another thing.  Maybe it's psychological?

Once most people who have lots of experience with both PMs, you tend to see that most gradually come to like gold better.  They hold onto the gold coin, preferring to spend the silver ones.

If I ever have to spend any of my PMs, I will spend my silver first, no matter what the Au:Ag ratio is.

There seems to be some fairly universal attraction of humankind to gold.  Maybe that's from the very ancient past...

Gold is very special in its properties including outward appearance, that is, color and shine. Silver, on the other hand, is nothing out of the ordinary, you could easily confuse it with tin, for example...

To me, tin has more appeal

[OROBTC]

I'll also mention another thing.  Maybe it's psychological?

Once most people who have lots of experience with both PMs, you tend to see that most gradually come to like gold better.  They hold onto the gold coin, preferring to spend the silver ones.

If I ever have to spend any of my PMs, I will spend my silver first, no matter what the Au:Ag ratio is.

There seems to be some fairly universal attraction of humankind to gold.  Maybe that's from the very ancient past...

Gold is very special in its properties including outward appearance, that is, color and shine. Silver, on the other hand, is nothing out of the ordinary, you could easily confuse it with tin, for example...

To me, tin has more appeal

deisik

I would be interested to hear your views on platinum, a lovely PM.

Pt is much scarcer than gold, and has a fair amount of industrial use.  Looking at its industrial use, I saw a comment: "Platinum is for optimists."  Pt has almost the amount of shine (almost as reflective) as silver.  Pt does not corrode either, no need to polish it...

Platinum is also "value-dense" (a little goes a long way), but Pt prices have fallen hard lately.  Nor is as liquid as Au and Ag.

[deisik]

deisik

I would be interested to hear your views on platinum, a lovely PM.

Pt is much scarcer than gold, and has a fair amount of industrial use.  Looking at its industrial use, I saw a comment: "Platinum is for optimists."  Pt has almost the amount of shine (almost as reflective) as silver.  Pt does not corrode either, no need to polish it...

Platinum is also "value-dense" (a little goes a long way), but Pt prices have fallen hard lately.  Nor is as liquid as Au and Ag.

Gold is the primary driver of all PMs (more so for silver, less for palladium and platinum). Thus if you are interested in the price of platinum, you should follow the gold lead. And I'm currently bearish on it. Unless the US gov decides on another round of QE, I'm still expecting the price to hit sub-$1,050 level...

Not until then will I look into gold again

[markj113]

deisik

I would be interested to hear your views on platinum, a lovely PM.

Pt is much scarcer than gold, and has a fair amount of industrial use.  Looking at its industrial use, I saw a comment: "Platinum is for optimists."  Pt has almost the amount of shine (almost as reflective) as silver.  Pt does not corrode either, no need to polish it...

Platinum is also "value-dense" (a little goes a long way), but Pt prices have fallen hard lately.  Nor is as liquid as Au and Ag.

Gold is the primary driver of all PMs (more so for silver, less for palladium and platinum). Thus if you are interested in the price of platinum, you should follow the gold lead. And I'm currently bearish on it. Unless the US gov decides on another round of QE, I'm still expecting the price to hit sub-$1,050 level...

Not until then will I look into gold again

More like a case of when and not if.

Now also talk of negative interest rates in the pipeline, if this happens it will drive pm prices hard.

[wearepoor]

I still love gold, because people can touch, wear it, and use it for cosmetics.

So the value has all around appeal for most people. And as long there is a demand for it, I see profit.

Yes you are right, gold is very popular over the period of time. Anyone can directly buy the gold and anyone can invest into the gold. Demand of gold is always high; some people invest in gold, some people need for jewelry and other cosmetics.  I think it's a good idea to have at least a small part of one's portfolio in gold and this is a good time to get in. Prices have come down from recent highs and demand will only increase.

[edric]

The real story of gold is that, during zero-interest deflation that is uncontrollable without the help of a bipartisan Congress willing to cut spending and redistribute wealth, gold will go to the moon without government intervention because people lose faith in fiat currencies as we go from a deflationary deleveraging to rapid inflation as the government tries to stimulate the economy again by essentially printing money.  During the Great Depression, the government confiscated/purchased gold at a fixed price, but gold mining stocks outperformed by a massive amount during this period in history.  It runs very counter to common sense, but that is because we are not in a normal economic cycle.  If you look at gold charts you will see this is starting to get reflected in the price as the Fed acknowledges the situation.

[BobK71]

The real story of gold is that, during zero-interest deflation that is uncontrollable without the help of a bipartisan Congress willing to cut spending and redistribute wealth, gold will go to the moon without government intervention because people lose faith in fiat currencies as we go from a deflationary deleveraging to rapid inflation as the government tries to stimulate the economy again by essentially printing money.  During the Great Depression, the government confiscated/purchased gold at a fixed price, but gold mining stocks outperformed by a massive amount during this period in history.  It runs very counter to common sense, but that is because we are not in a normal economic cycle.  If you look at gold charts you will see this is starting to get reflected in the price as the Fed acknowledges the situation.

The last 400 years of Western history *is* the story of suppressing gold prices.  The modern monetary system (which hugely benefits a small elite but makes everyone pay the social and economic price) couldn't survive without this suppression.

The reason is that people, at some level, see through the deception and collectively demand gold to protect their savings.  This is not going to get easier for the elites, as trust in them has eroded at a faster pace after the 2008 crisis.  The outsiders among US presidential candidates are having a field day, with really no qualifications other than being outsiders.

The current deflationary and weak-growth environment also threatens the entire system (even though deflation-with-inequality is better than stagflation, in the short term, from the point of view of preserving trust in paper currencies.)  The threat is that this system *must* have economic growth to justify the value of the mountain of financial assets based on paper currencies, or investors will want to liquidate to cash, which will destroy demand, as happened during the Great Depression and the Japanese stagnation.

If that eventually happens (as seems more and more likely nowadays,) the authorities will have no choice but effectively to devalue currencies against gold, explicitly or implicitly, by a huge amount.  Only that would give them enough monetary stability to greatly expand their relatively timid efforts to stimulate both growth and inflation since the crisis.  At the same time, the inflation that would result from such stimulation would go a long way to wiping out the real value of debts -- a debt overhang which has been tying the hands of the authorities in every way in their efforts to stimulate.

[BobK71]

I think if you really categorize precious metals as money, then I think only silver is a real "precious metal" money.

Gold still suffers from lack of divisibility which is a core property of money. Prices are generally relatively too low for gold, so this makes trade very difficult with standardized gold coins or gold cubes.

So for everyday goods standardized silver coins, cubes or rounds are a better physical "money".

Gresham's Law

I`m not saying gold=silver, because it clearly is not equal.

But at current silver/gold rates, you can see that from a healthy 20:1 ratio the ratio now is over 60.

So just from an investment standpoint, if the precious markets kickoff, you could make a bigger ROI with silver, than with gold.

I agree with RealBitcoin, silver has been the money most widely used throughout history among the 2 precious metals, and about the ROI, that is something that I agree as well, one of the reasons for that is that most uses of gold actually preserve gold (examples, jewelry, coinage, etc) while a significant amount of the industrial uses of silver, destroy it. (or make it very difficult to recover)

Silver is bad money while gold is good money. The bad money drives out the good money from circulation. That's why silver had been more widely used than gold through history. People spent silver but saved gold specie...

I suspect that very few people realize the true meaning of Gresham's Law, and especially as applied to gold and silver.  Gresham's Law really says that, *where there is an artificially supported exchange rate between two monies*, the undervalued money will be hoarded, and only the overvalued money will be left in circulation.

Unfortunately, silver got completely excluded from the monetary system since about 1870, and that's why it has been trading at well below its long-term exchange rate against gold.  It's a long story, but, essentially, the authorities eventually learned that fixing exchange rates (such fixing, allowing the issuance of paper, being the ultimate source of wealth and power for the very top elites of the modern world) among paper, gold and silver was hard to juggle.  They had to eject one of the three.  Certainly they wouldn't eject paper, so they chose one of gold and silver.

What this means is that, unless the elites lose control totally, silver will be left out in the cold.  Before they lose control, we know they will try (effectively) devaluing paper against gold to lend stability to paper.  So gold is good in two scenarios, where silver is good in only one, and we don't know the relative likelihood between the two.  (Keep reading the news!)

[OROBTC]

I think if you really categorize precious metals as money, then I think only silver is a real "precious metal" money.

Gold still suffers from lack of divisibility which is a core property of money. Prices are generally relatively too low for gold, so this makes trade very difficult with standardized gold coins or gold cubes.

So for everyday goods standardized silver coins, cubes or rounds are a better physical "money".

Gresham's Law

I`m not saying gold=silver, because it clearly is not equal.

But at current silver/gold rates, you can see that from a healthy 20:1 ratio the ratio now is over 60.

So just from an investment standpoint, if the precious markets kickoff, you could make a bigger ROI with silver, than with gold.

I agree with RealBitcoin, silver has been the money most widely used throughout history among the 2 precious metals, and about the ROI, that is something that I agree as well, one of the reasons for that is that most uses of gold actually preserve gold (examples, jewelry, coinage, etc) while a significant amount of the industrial uses of silver, destroy it. (or make it very difficult to recover)

Silver is bad money while gold is good money. The bad money drives out the good money from circulation. That's why silver had been more widely used than gold through history. People spent silver but saved gold specie...

I suspect that very few people realize the true meaning of Gresham's Law, and especially as applied to gold and silver.  Gresham's Law really says that, *where there is an artificially supported exchange rate between two monies*, the undervalued money will be hoarded, and only the overvalued money will be left in circulation.

Unfortunately, silver got completely excluded from the monetary system since about 1870, and that's why it has been trading at well below its long-term exchange rate against gold.  It's a long story, but, essentially, the authorities eventually learned that fixing exchange rates (such fixing, allowing the issuance of paper, being the ultimate source of wealth and power for the very top elites of the modern world) among paper, gold and silver was hard to juggle.  They had to eject one of the three.  Certainly they wouldn't eject paper, so they chose one of gold and silver.

What this means is that, unless the elites lose control totally, silver will be left out in the cold.  Before they lose control, we know they will try (effectively) devaluing paper against gold to lend stability to paper.  So gold is good in two scenarios, where silver is good in only one, and we don't know the relative likelihood between the two.  (Keep reading the news!)

Gold is also held by the central banks, silver is not.  Here is some commentary by FOFOA (he very much likes gold, but does not like silver):

http://fofoa.blogspot.com/2015_06_01_archive.html

FOFOA posted this nice little chart:

http://2.bp.blogspot.com/-sT1SSS5xZe4/VXqqIEMtA7I/AAAAAAAAGwg/NHaxKhV6t1c/s1600/stock_to_flow.jpg

Note that gold has a huge stock:flow ratio.

[deisik]

Silver is bad money while gold is good money. The bad money drives out the good money from circulation. That's why silver had been more widely used than gold through history. People spent silver but saved gold specie...

I suspect that very few people realize the true meaning of Gresham's Law, and especially as applied to gold and silver.  Gresham's Law really says that, *where there is an artificially supported exchange rate between two monies*, the undervalued money will be hoarded, and only the overvalued money will be left in circulation.

Gresham's Law (or, rather, the principle behind it) would hold even in the case of a floating exchange rate (for example, Bitcoin vs USD). I have explained this here (and in greater detail further on)...

[acquafredda]

Silver is bad money while gold is good money. The bad money drives out the good money from circulation. That's why silver had been more widely used than gold through history. People spent silver but saved gold specie...

I suspect that very few people realize the true meaning of Gresham's Law, and especially as applied to gold and silver.  Gresham's Law really says that, *where there is an artificially supported exchange rate between two monies*, the undervalued money will be hoarded, and only the overvalued money will be left in circulation.

Gresham's Law (or rather the principle behind it) would hold even in the case of a floating exchange rate (for example, Bitcoin vs USD). I have explained this here (and in greater detail further on)...

Thanks man this is so interesting! I always thought in these terms even though I did not know anything about this Gresham's law.
This makes so much sense right now.

[OROBTC]

...

deisik and friends

One problem that has been seen many times, particularly in US financial history, is the relative valuations (to each other) of gold and silver have caused their own problems.  For example, when US silver production went up a lot in the last half of the 1800s, there was so much silver that it's price was down a lot from the 15:1 (16:1) ratio that was in effect.  The producers (and other fans, especially Wm. Jennings Bryan) of silver caused much US gold to go to Europe (as the Europeans were arbitraging a low gold price -- too low, Au:Ag was a fixed ratio despite more silver flooding the markets).

The USA was on a BIMETALLIC standard, and when new sources of gold or silver hit the market, it caused distortions.  With relative prices pushing that Au:Ag ratio around, it was decided, rightly IMO, that a single PM would be the best reference price.  And the PM they chose was gold.  So gold is what the USA stores as well as the rest of the world.

Silver is a precious metal too, with an even longer and more common use as a monetary metal than gold.  But, gold is what we as a people really want!

[BobK71]

Gold's interesting stuff a better basis for an economy than the rigged casino chips we're using, certainly from a trust perspective but it doesn't really work in a free for all, "let there be greed" scenario, wealth accumulates and eventually there's not enough left to go around, you get an immense class divide and next thing it's pitchforks and flaming torches.

That's redistribution of wealth of a sort but it's not very efficient, the scenarios gold has worked successfully in for very long periods have included sounder means of redistribution of wealth, tithe, charity, etc. Bitcoin has the same issue and its unlikely the western world would take favourably to a coin that gives 10% of your stash to poor people every year and there really isn't much alternative to the smoke and mirrors of inflation and national debt to magic a few percent away from the accumulated hoards.

Truly free markets naturally decrease inequality; if you don't have much money, you're willing to work for less, and thus more likely to get hired or purchased from.  The same holds among countries as among individuals.  That money begets money through investing would not be problematic if the assets were allowed to sink or swim in the market.  (If your investments did well, you were contributing to growth and others' incomes anyway; if they did't do well, you were taking the fall.)  The problem is that  money and finance are not a truly free market.  Asset values are propped up by public power (because the state is able to, by controlling the core asset, money) and that's where money begets money in an undeserved manner.

The current worsening inequality is precisely the result of the propping-up of assets, since the rich own most of the assets.  One way to look at it is that the authorities are keeping rich people very rich, in order that their whimsical purchases allow others to survive.  Another way to look at this is that, one way or another, the system must have inequality and poverty in a low-growth environment with lots of created money.  Otherwise, the inflation would eventually take away trust in money and thus the power of the elites.  (Thomas Piketty, no friend of markets, also observes a historical correlation between low growth and inequality.)

The core driver of the whole process is that the propping up of assets gives the elites most of their power and wealth.