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Comment by rwmj | Hacker News Reader

Why do countries bother to hold gold? Wouldn't it be sensible to sell as much of it off as possible? (I'm asking like "ELI5" because I'm sure there is a reason)

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Currencies actually fail quite regularly (hints: Zimbabwe, Venezuela) - it makes a lot of sense to hold wealth in a form that will survive that. Maybe someone wants to claim that any individual country "will never" suffer from a currency crisis. I'll just point out that America went from Barack Obama to Donald Trump in one election then agree to disagree.

Countries want an asset that can hold wealth through a crisis where the way things work radically changes. This asset needs to be:

* As indestructible as possible

* Easy to transport if an adversary is approaching (see also, European history :P)

* Hard to create

Gold satisfies these requirements really well; and as an added bonus it is nearly useless so hoarding it doesn't risk the real economy (see also; the US helium reserves and the risk to medical imaging or such when they run out).

EDIT I'll add that the 'easy to transport' part is what makes this Fed-Bundesbank business so completely weird - this quantity of gold is physically quite small and should be easy to inspect and audit.

But where currencies fail (as in Zimbabwe, Venezuela, Iraq, etc), gold never became a backup currency. No-one was trading gold coins for goods and services, and anyone trying to leave these countries carrying gold was at serious risk. Gold isn't going to help you here, at worst it'll put you in more danger.

Bluntly said:

The gold of the central banks is not for saving the asses of the common folk but for saving the ass of the government and to have at least the tiniest sliver of hope of being able to somehow rebuild an economy after the whole failing state business is over and done with.

They do. Switzerland sold more than half of their gold in the past 20 years, including all their holdings at the Federal Reserve in New York (that's like 1300 tons of gold that was sold, in comparison the hundreds of tons that are mentioned on the article for germany and netherlands).

Not sure why the article doesn't mention that fact, maybe it doesn't feed into the FUD/conspiracy theory?

it is mentioned in other circles where this is widely and passionately discussed. and the "conspiracy theory" burns on as it is suspected China is buying the worlds gold at an "alarming" rate...with the theory being a gold backed currency is in the works.

until the world stops needing oil to function, no one is going to care much.

Did Switzerland sell them themselves, i.e. were they flown back to Switzerland first or was the sale done by the Fed?

I would assume the gold is typically never traded by moving it physically between location, but just brought into a vault where both parties have an account (like the Fed, or London)

They didn't say how much gold they had at the Fed, just that they used to and that they no longer have any.

https://www.bullionstar.com/gold-university/central-bank-gol... has a bunch of data.

For example with the sell via the BIS, I assume they just transferred the gold within the Berne vault to BIS (BIS has an account there), and then let the BIS handle the sale. The London gold was likely already there.

Absolutely. If people don't trust that the fed has all its gold, people would be wary of buying gold in there. But Switzerland managed to sell 1300 tons of it, presumably at reasonable prices for the time. That's a lot of buyers who don't worry about their purchases not existing.

Diversification of "hard assets" because the value of sovereign currency is illusory and often fleeting.

I agree that mining, storing and transporting gold around the planet is a waste of resources, but there are only so many places to store wealth in a physical manner. The fact that gold has historically been useless in industry probably adds to its value.

Given that you want an asset which is difficult to move, wouldn't it be better to build infrastructure instead (eg. roads). At least you can use that asset. I don't understand why gold would be preferable.

roads require maintenance and are only valuable between two points people wish to traverse. gold doesn't deteriorate, is trivially divisible, and can be moved when you want to -- stays put when you don't. gold has been a store of value for millennia, so I personally find it ignorant to ignore the historical significance. hopefully we can rope an asteroid with a few billion tons of gold (and other precious metals) and make them all less precious indeed.

If diamonds are anything to go by, it is perhaps unlikely that the asteroid miners would dump the whole lot on the market in one go. It would be in their interests to maintain prices in order to maximise their profits, would it not?

Depends on if they're using the Bond villian playbook or not. I'm sure there's some convoluted plot you could cook up, given the threat to depress the world gold market.

The problem is that roads are too usable. They can be used by your political enemies just as they can your friends.

Infrastructure is both less durable as well as less liquid. It also returns diminishingly as you engage projects on your opportunity cost frontier. Also likely to be less secure to military or political threats.

You can give your gold to other countries in exchange for stuff (eg weapons) but you can't do the same with roads

Gold is not useless in industry. It is used to conduct electricity in many industrial settings. It also has other uses - dentists use it as a tooth crown etc. That it is useful is why it has value.

Yes, storing and transporting gold for financial purposes may be a waste of resources. But gold is easier to store than most commodities - put it in a vault for several centuries and forget about it. You can't do that with strawberries. You can transport a lot of value in several ounces of gold without much space needed.

When was the last time gold was used in dentistry?

Every day? Gold fillings are significantly more durable than amalgams.

http://www.webmd.com/oral-health/guide/dental-health-filling...

https://en.wikipedia.org/wiki/Dental_material#Gold

> Why do countries bother to hold gold?

Nowadays, a chief reason is "because the others do, too" ;) it is also a brilliant instrument to stabilize/tweak currency fluctuations without buying/selling "too much" of another country's currency/debt or more generally, any third party's nominal promises/future obligations. It may prove exceptionally useful in future defence of a given currency's (global) purchasing power. Gold is the only asset that can accept any currency valuation (in both directions) without some broad group or other of real people, producers or consumers, complaining loudly (other than a tiny group of hobbyist speculators) while also showing a multi-millenium track record of durability, also in value, on a planetary scale and immunity to EMP or endless forks or Nixons. It need not perform any specific role 99% of the time, it need not even "perform" nominally at all, on the country scale (CB scale / oil wealth scale / giant old-family-wealth scale) it just needs to sit, tight and guarded, through changing times and the rare geopolitical/monetary transition or other.

If you make the money, i.e., print the paper and convince people to associate it with value, then money has no value in itself to you. But gold is nothing you produce. It's already there and people already associate value to it. Even another country who doesn't like you is willing to listen to your demands if you promise them gold in return. Therefore having as much gold as possible is one of the things that grand you power as a country. Other things are valuabe trade goods like oil, high tech, cars, etc. Again other sources of power are technology&science, knowledge, military, lots of people.

Gold is extremely rare on Earth, because it is extremely rare in the universe - it comes from neutron star collisions. [1] To underline the scarcity on Earth, there are thoughts that we are reaching 'peak gold.' [2] You can read here the lengths we go to to get at small seams of gold: http://gizmodo.com/terrifying-facts-about-the-worlds-deepest... Asteroid mining may be a check on this.

Most of the gold in the world is used for jewelery approx 68-78% depending on the estimate. It does have its uses as an industrial metal, but if there wasn't gold tomorrow, the sun would still rise.

In the US, we don't have the same cultural relationship with gold that exists in India, China and elsewhere, where most of the demand is. Keynes called gold a 'barbarous relic,' and I think that's been adopted to some degree in our culture. Central banks hold many currencies, and in some cases baskets of currency. Gold is another that can't be printed, and has a multi-thousand year track record (what currency can claim that?).

More immediately, if I was in the shoes of a central banker, I would be looking to participate in the future gold-backed currency markets. Gaddhafi tried to start a gold-backed Dinar as a pan-African currency and to settle oil trades that would have competed with the petrodollar system. A bayonet and several bullets put these plans on hold. There has been talk of Russia, the top oil producer [3][4], and China moving to gold backed currencies [4].

I have exposure to gold mining stocks. For me, I'm thinking about the reasons above. I'm also thinking about the next financial crisis with the backdrop of rates barely above 0%, a massively leveraged derivatives market that will eventually be looking for real assets at the end of all of the complex chained structures, a massive debt overhang, and looking at what Moody's thinks about our pension system, Social Security, and Medicare [5]. Trying to stay hedged.

[1] https://www.cfa.harvard.edu/news/2013-19 [2] https://en.wikipedia.org/wiki/Peak_gold [3] https://www.bloomberg.com/news/articles/2017-02-20/russia-ov... [4] https://www.forbes.com/sites/nathanlewis/2016/05/05/china-is... (note: commentary piece) [5] https://www.moodys.com/research/Moodys-US-government-pension...

You miss the point. The value of money is based on trust and belief. Hence the word fiducial (fiduceo) money.

One part of a market is holding your promises. If you don't all your current transactions are considered shady (standards& poors, ...), hence the notation agency on currency: it measures how likely you are to reimburse your debt.

USA being one of the largest emitter of bound on the market, the word they are being crooks on an important topic would damage on the long term reputation hence the value of their currency, hence triggering a strong recession + hyper-inflation.

In the case trust in USA Feb bank (which is private) is broken, USA may turn abruptly in Venezuela.

Since most notation agencies are in the USA, it might have a domino effect creating major chaotic fluctuations between currencies, hence automatically triggering a safe backing off from every hedge fund out of their countries ...

If USA lose the trust of the market since globalisation is labelled in US$ it means either people are going to diversify to Swiss Francs, Euro, CAD, Pounds ... and a big loss for USA.

No one want this. Not the big european, asian groups.

Workers and modests people would be totally glad, but it would mean a 1929 situation in the USA for sure, and in a lot of connected economies.

So no one wants this.

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