How to get $12 billion of gold to Venezuela | Hacker News Reader

How to get $12 billion of gold to Venezuela

blogs.reuters.com

171 pointspathik123 comments

As a Venezuelan, this is terrible news. Forget economic consequences for a minute.

The corruption levels in Venezuela are incredibly high. Is widely known that the Chavez government has been one of the most corrupt government in Venezuela history.

What do you think is going to happen to this gold when it gets to Venezuela? (If it ever gets there)

I mean, I don't know the dynamics of this, but which authority is going to weigh the incoming gold? Who are we supposed to trust when every institution in the country is in Chavez hands? They basically say what they are told.

Also, our Central Bank does not have the physical capacity to store that much gold. Chavez already offered the basement of the Presidential Palace :S (which I have been to and is as a regular basement can be).

What about the cost of moving that quantity of gold? They are already talking about 40 trips. Yeah, that's going to cost, 400 million according to the article. Money that could be very well spent in say, hospitals: http://www.noticias24.com/actualidad/noticia/302153/en-fotos... )

As for the cash reserves: they are going to Russian and Chinese banks. Sorry to those that might be offended, but personally I have as much trust in these governments as I have in mine.

We have an election in 2012. If Chavez looses (or if he evens runs... he might die from his cancer before that, dunno), that gold is going back. More gold will be lost along the way.

What about the cash reserves? The new government will have to deal with Russians and Chinese institutions under a different premise, because the new government will be or will try to be very close with the US. I think we can expect things to get a bit rough and a lot of gold will go unaccounted for.

Sad news for Venezuela, once again.

Good points.

This could be a bad signal, gold is very handy when you need to get out of a country in political change.

Didn't had the Wife of the Tunisian Dictator a ton of gold?

In which case surely he'd keep it in Europe?

Or is this Venezuela's gold rather than Chavez's personal gold? In any case, I'm sure that Chavez, like most dictators, has a crapload of money carefully squirreled away in foreign countries. Attempting to steal Venezuela's own gold and then sneak out with all he can carry doesn't sound useful.

> In any case, I'm sure that Chavez, like most dictators, has a crapload of money carefully squirreled away in foreign countries.

Probably, but where do you think that it came from?

> Attempting to steal Venezuela's own gold and then sneak out with all he can carry doesn't sound useful.

However, it is useful to steal it and start moving it now.

Plus, it's always useful to have some "traveling money" that will work when you're fleeing. You can't afford the time to negotiate good deals.

I'm surprised he doesn't talk with Brazil. I mean he could agree with Brazil to get the equivalent tonnage from Brazil and just trade ownership certificates. Tell the bank of england that its Brazil's gold now, and have the Brazilians roll up some bars from the southland.

It is an amazing challenge though to get that much 'value' through.

Alternatively he could trade it for diamonds and then transfer those?

Chavez government has been one of the most corrupt

Really? Venezuela should be a much richer country but was controlled by a cabal of wealthy families that siphoned the wealth off.

Since Chavez, the poverty rates are down and literacy is way up.

The gold move is a smart one. Control of actual gold bullion will be important as we go into these next tumultuous months.

Venezuela should be a much richer country but was controlled by a cabal of wealthy families that siphoned the wealth off

I have heard that argument before...many times. Is a very poor argument.

Chavez has been in power for 13 years with the highest oil prices in Venezuelan history. Most of that money went to their personal pockets. How do I know this you might ask?

It happens that it is LAW. You see, the Chavez government created a LAW that would allow them to set the national budget price, at the time was at 70$ I think (don't quote me on that) and any amount above that would go to a PERSONAL presidential account that Chavez controls and has no OBLIGATION to tell anyone what he is doing with that money.

Let me remain you that we spent several years with the prices above 100$ per barrel and that Venezuela produces about 2.5 million barrels of oil PER DAY. I'm not going to pretend the need to do the math here for the HN folks, but just in case, for illustration purposes that personal account would receive somewhere on the lines of...

75 million dollars a day.

Try to grasp how MASSIVE that amount is.

You see, when you talk about poverty and literacy I simply know that you have not been nowhere near Venezuela.

Venezuela is falling to pieces, structurally, morally, economically, etc. We wasted a decade that could have turn our country in to a super power.

"Venezuela is falling to pieces, structurally, morally, economically, etc. We wasted a decade that could have turn our country in to a super power."

This is so true, based on my experience having stayed in Caracas, Venezuela on my way to Bogota, Colombia just a few months ago. I was shocked at the difference between those two neighbouring countries, Colombia is rapidly improving whilst Chavez is destroying Venezuela.

I find this very easy to believe and it is the story of the poor major oil producing countries. In Nigeria, 25% of the national budget is dedicated to the personal expenses of the lawmakers by law. The rest makes its way into a very corrupt system that the multinational oil corporations are complicit in building after infiltrating the government and civil service at all levels [wikileaks]. They easily avoid accountability for persistent decade-long oil spills that exceed the Gulf of Mexico incident each year. In the long term, this 'oil wealth' is toxic to the society, infrastructure and environment of these countries.

The demand for oil is in every sense an economic addiction and the governments of the industrialised world will suspend all principle to keep the pipelines flowing. They empower ruthless sociopaths with billions of dollars and feign outrage when these despots hold their people hostage and slaughter thousands to maintain their hold on power. Why are the world's most dangerous men invariably from major oil producing countries?

I think the capitalist ideal of money as the only measure of success is a very irresponsible way to run a planet. In the past at least, the system seemed to work in favour of a few countries that were first at the controls. Now that there is just so much momentum that this ship has started to fly itself, I find it amusing to watch the US and Europe scrambling to come to grips with just a small part of the helplessness of the other 5 billion.

Canada produces more oil than Venezuela. Not a country I would characterize for it's ruthless sociopaths and the slaughter of thousands.

Whenever you have something of value bad people will try to take it with force. The capitalist ideal of money is that markets allocate resources better than force. Saying that capitalism creates brutal dictatorships, is like saying banks generate robberies.

"Catch them young"

Canada was a highly developed economy before the era of big oil. It has the third largest proven oil reserves after Venezuela and Saudi Arabia. Despite high production, primary industries constitute less than 6.2% of GDP. Contrast this with embryonic economies that were just emerging from colonial control, where a few million dollars was disproportionately above average income and you could buy yourself a government by creating a ruling oligarchy.

"We only negotiate with terrorists when they're selling oil."

The capitalist deception is that money bought weapons for the ruling class to do the dirty work of taking these resources by force when necessary. Doing big business with a thug empowers him; when he's several orders of magnitude wealthier than everyone in his community, you get a polarized society of highly successful armed gangs and oppressed people. When he's also a religious extremist you get the Taliban. Can a free market exist without a free society?

" Why are the world's most dangerous men invariably from major oil producing countries?" Natural resources have a way of corrupting the society. I even did a project on the correlation between corruption and natural resources as a part of GDP. Here's a link , http://en.wikipedia.org/wiki/Resource_curse

Natural resources have a way of corrupting the society.

Natural resources have a way of bringing corrupt people to take those resources from you.

Good article. It is rather depressing to accept the reality that these countries will only continue to deteriorate for the foreseeable future.

Could this be analogous to the "Curse of the gifted" but on a geopolitical scale?

> It happens that it is LAW. ..at the time was at 70$ .. and any amount above that would go to a PERSONAL presidential account that Chavez controls

This sounds like propaganda. Got a link to this law?

Sorry I can't find a direct link to the law http://www.noticierodigital.com/2011/04/el-nuevo-herald-chav...

It's a national development fund controlled by the president, not his personal bank account. It is suggested by analysts that Chavez uses the money as his way to "buy elections" (probably by subsidizing the poor, and not helping the "trickle down" economy by giving the money to the rich). Of course some money gets lost, it always does, right or left goverment.

It's a national development fund controlled by the president, not his personal bank account. It is suggested by analysts that Chavez uses the money as his way to "buy elections"

So it's a fund controlled by the president in a government where he does not have to respond to anyone. Would you mind explaining how is that not his personal bank account?

Literacy is up only 2% in the past decade.

http://data.worldbank.org/indicator/SE.ADT.LITR.ZS/countries...

Venezuela is one of the last remaining socialist dictatorships in South America. If you look at the other countries who rid themselves of dictators and turned towards market democracy the growth rates have been staggering.

South America is full of resources and natural wealth, and should be a very wealthy economy. The only thing holding parts of the continent back is the class warfare and old marxist/socialist governments.

Look at how well Chile (a benchmark for modern western markets via Milton Friedman et al) and Argentina (for a time) recovered. That is what Venezuela should also look like. I have never heard anybody argue for the South American style of socialist dictatorships and against the reforms that have been demonstrated in the other, successful, nations of the region.

See 'The Miracle of Chile':

http://en.wikipedia.org/wiki/Miracle_of_Chile

I didn't know there were other socialist dictatorships in South America. We've had many (right-wing) military dictatorships though.

I don't particularly like him, but I think it was inevitable that someone like him would show up given the history of economic inequality in the country. You have to realise that you can only tell people it's their fault for being poor for so long before they react.

Yet he tells those same people that the current government faults are cause by the previous governments. Funny since he has been in power for 13 years.

Current problems in Venezuela are the responsibility of this government.

I specially like when they says things like the fact that there are teenagers girls aged say 17, getting pregnant because of the lack of education in our school system. And yet nobody seems to realize that a 17 year old girl was 4 when Chavez got to power.

I tell you, the things us Venezuelans need to hear everyday... it makes you want to cry.

Incompetence at its finest.

>The only thing holding parts of the continent back is the >class warfare and old marxist/socialist governments.

Having just lived in 5 different countries in South America over the last year and a half, I disagree. If I had to pick "The Only Thing" holding parts of the continent back, I have to say the severe meddling of the west. It's disgraceful.

And having lived 10 years under Chavez rule, you and the people like you who support the likes of Chavez is an absolute disgrace to mankind.

Woah, hold on there. I didn't for one second say I supported the likes of Chavez. I said if I had to pick "The Only Thing" holding back the development of South America, it's the meddling of the west (and Central too, IMHO). I actually think Cahvez has some good ideas in theory, they just don't work out well for the people of Venezuela Which shows they are actually bad ideas in reality. Which sounds suspiciously like the old "Communism/Socialism work great in theory, but not in reality"

Your comment is fiction almost from beginning to end.

Venezuela is not a dictatorship; it's been a democracy since 1958. It's true that it's socialist, just like Canada and France, but it's struggling with much bigger problems of corruption, illiteracy, poverty, and crime than those countries are. I don't think Chávez has improved the situation much. Chávez's government may not be a very good democratic government, but it is at least a democracy. The opposition is even worse, which is why they don't get elected.

I live in Argentina. The country has immense potential, but it's been in intermittent decline since the 1930s. It has never had a Marxist government. The periods of rapid decline have largely coincided with right-wing military dictatorships, although there have been a few major disasters under democratic governments as well, notably the 2001 economic collapse produced by the unsustainable 1990s economic policies you are commending.

It's useless to blame "class warfare" for the problems. Even if it's true that the rich are in a state of war with the rest of society (and I think it's a substantial exaggeration; expatriating your ill-gotten gains, making racist remarks about Paraguayan immigrants, and hiring employees under the table does not rise to the level of warfare) the path to reconciliation is through building a society they feel proud to be included in and confident in investing in, not blaming them for the social problems we all have a hand in creating.

Chile has barely surpassed Argentina economically after 80 years of Argentine decline. It's true that it has a more functioning economy, but I'm not sure that the society as a whole is functioning better.

Chile also never had a socialist dictatorship, nor has Uruguay, Venezuela, or Brazil, so I think that when you talk about "the South American style of socialist dictatorships" you are lying about history in hopes that your readers will be ignorant. Maybe there's something that actually happened in the real world that that phrase is intended to refer to?

What about the massive protests and national strike this week?

He's moving the gold because:

* He's worried that sanctions etc could freeze it

* He want's to be able to sell it without being clear about it (so he can buy the next election or make a personal nest egg with it).

Venezuela's bonds moved 50 basis points on this so the markets are obviously worried that the gold's going to start evaporating once it's under his control.

Rumors are that Chavez wants to confiscate/socialize the venezuelan gold industry => http://blogs.ft.com/beyond-brics/2011/08/20/venezuelas-gold-...

Foreign companies that would lose their mines would very likely try to get hands on the gold that's located outside of Venezuela (with a court order etc)...

The correct term is nationalization. As far as I'm aware, there have been many nationalized foreign companies in Venezuela but the owners are getting paid. Given that I haven't heard anyone complaining, the prices are probably fair. So, this is very far from confiscation.

That is so far from my general impression of the matter, I had to do some news searches to make sure I wasn't taking crazy pills. Fortunately, it seems I wasn't. "Companies are very afraid."[1] Here[2] we have a company whose oil rigs were "nationalized" because they refused to do more work until they were paid the $49 million it was owed. Another article [3] indicates that Exxon-Mobil and Conoco-Philips might get paid for their assets four years after nationalization.

[1] http://www.washingtontimes.com/news/2009/may/12/nationalizat...

[2] http://www.reuters.com/article/2010/06/24/us-venezuela-natio...

[3] http://www.stockmarketsreview.com/extras/venezuela_to_compen...

The alternative is something like South Africa and Botswana where the worlds largest gold and diamond resources were stolen, and are still being stolen by a small clique of individuals connecting Durban, Belgium, New York and London, and the same wealth was used to support a number of minority governments in Africa and Asia, some of which are very popular with the right wing. I hate communists as much as the next person, but you've got to have perspective.

You've got to be kidding. Chavez "nationalizes" to take over companies and presents the move as taking from the rich to give to the poor. Castro did something similar with American companies like The Hilton when he came into power, as do virtually all socialist dictators. The owners of those companies are far from content. It's just utter ignorance to even state that.

50 basis points = 0.5% http://abstrusegoose.com/389

50 basis points = 0.5 points, not 0.5%. Points are cumulative percent is multiplicative.

Oh, I see. So if you gain 150% and then lose 100%, you're at 0 because losing 100% leaves you with nothing. But if you gain 150 points and then lose 100 points, you're still at 50 points. Right?

Yup :)

If ever there was a clear example of why gold makes a terrible monetary base this was it.

And it seems to me that a lot of the reason for gold being worth a lot is countries just sitting on it. If they would sell it to people who would use it (for jewelry or active trading) the price would go down a lot.

And what is the point of just having lots of gold and never using it? It's just a big pile of metal, if it wasn't there would anyone notice the difference? (i.e. could I borrow it, then return it 100 years later? Would anyone notice?)

Actually, Chavez has already destroyed his fiat currency. What's a better alternative store of value than gold?

Oil would work. It has a large and liquid market. And they have plenty of it.

How would you store oil if you wanted to actually have possession of the asset? Barrels of oil in the basement seems pretty unreasonable.

The same way you store gold: You pay someone to store it for you. It's bigger so it's harder to store, but it's also harder to steal, so it needs less guarding.

I'm not suggesting it as currency, just if you need something to back your currency oil works a lot better than gold.

If everyone was using it for transactions there would be a much, much higher demand and you wouldn't need 40 planes worth for a similar amount of buying power.

Ultimately, energy should be currency, not gold, but it is still better than fiat.

Facing a similar problem, the Pentagon used 21 C-130 Hercules cargo planes to haul $12B to Iraq. Admittedly, the Pentagon only had to ship pallets of $100 bills, not gold bars.

Surprisingly, federal auditors are now suggesting that some or all of the cash may have been stolen, not just mislaid in an accounting error. U.S. officials claim often didn't have time or staff to keep strict financial controls, so millions of dollars were stuffed in gunnysacks and hauled on pickups to Iraqi agencies or contractors.

http://articles.latimes.com/2011/jun/13/world/la-fg-missing-...

Charles de Gaulle did something similar in 1965, but he was importing gold from the US, not from England.

Argentina had a similar problem in 1946: its central bank "reserves" were actually held in trust by the Bank of England, in large part as a result of Argentina feeding England through the war, and England (as I understand it) couldn't come up with the cash. The eventual solution was to exchange the reserves for the British-owned railways of Argentina, which unfortunately couldn't be exported in trade to import the things Argentina needed.

I could be naïve, but I think keeping your central bank's reserves overseas in a possibly hostile country is a dumb idea. Chávez doesn't seem to have done a very good job at New-Dealing his country, but he does get some things right.

Actually, the logistics (which the article focuses on) isn't as unique a problem as one might think. Australia alone produces about 300 tons of gold each year and I would expect most of it is exported.

But not in a single shipment. I don't know how much ships and airplanes leave Australia each day, but let's say it's 1000 (I guess the 2 or 3 main airports alone would do that, but let's say) and if each would take a kilo of gold with them, all produced gold can be send abroad. That's a very different situation from what Chavez apparently is trying to do.

I don't understand why this is such a big deal. The solution is right there in the article - send a few ships from the navy, like the Spanish treasure fleets of old.

If England doesn't want armed Venezuelan ships in their waters, use a freighter and escort it all the way back. Divide up the cargo between the ships if you're really paranoid.

The author is inventing a problem where none exists. Transporting large amounts of heavy cargo overseas is a solved problem.

Ordinarily, you'd want insurance on such a shipment. Even if you sent the navy, getting insurance for the transport between the bank vault and the armed ships could be an issue.

Just saying that this is not a new problem and there are tested procedures for moving that sort of quantity of gold around the world. (The article seems to imply that a "new" solution was needed).

For example, swapping physical metal in one location for physical metal in another location is common practice among banks and large investors. They could swap metal to various other locations around the world before shipping it back home bit by bit.

The main reason large orders are split into smaller shipments is the risk (and insurance costs). The Venezuelan government may decide that it's navy can provide better insurance than a commercial insurer, in which case it might make sense to do it all in one shipment (which would be quite unusual).

> It would take a little while, but eventually the gold would start trickling in: if you’re willing to pay a constant premium of 2% over the market price for a good, you can be sure that the good in question will ultimately find its way to your door

I'm not sure about the authors qualifications but why would I ever risk bringing a bar of gold to a Venezualan bank to earn 2% on my money?

I can get better rates in the bond market with much less risk.

Now if your willing to pay a 50% premium the I can see something working here

You get 2% per year on the bond market, but you get 2% instantly when exchanging in the proposed fashion. If you could traffic enough gold, let's say because you are a pilot and fly in and out of Venezuela 5 times per week, you can make a bundle on a deal like this. (make a quick excel sheet - you can double your money in 6 weeks when you can make an exchange like this 5 times a week! Beat that with bonds!)

Sure, but you're discarding all the other costs associated with bringing in gold, plane, fuel, security. These will eat up all of your profit.

As the article stated, 500 million for insurance on 12 billion in gold is allready over the 2% your going to earn. And that's before you factor in any security, borrowing/carrying costs, transportation.

I have done the numbers and you end up in the red on each and every transaction you do:(

That's not the point, you said 'I can get 2% on bonds' which is a completely nonsense comparison, that's what I was saying. You confused a 2% per year yield with a 2% per transaction yield.

And the hypothetical pilot that I used as an example doesn't have to pay any costs - he just puts a gold bar in his suitcase. With gold prices of 33k€ per kilo, he can (hypothetically) put a kilo in his luggage and make 660€ on each transaction, or start with whatever initial amount he can scrape together and double his money in 7 weeks.

(yes there are probably regulations on what pilots can do when on duty, and customs regulations etc, my point is that there are many people who can externalize the costs you mention and they can make a handsome profit. If I'm a sailor on a cargo ship, it would be easy to take 10 kg of gold and make 6600 euros on a shipment. Split that half way with whoever bankrolls it, and it's still a great ROI).

You can't eat gold, all this rant on gold is so stupid, the monetary value is merely historical. In modern economy only counts the real application of resources and nothing else. Nobody will ever introduce a new Gold standard, a resource is a bad idea for a currency. What if someone finds a gigantic Deposit or a way to cheaply produce Gold? The additional value over the real industrial utilization is a bubble, nothing else.

It is truly painful to read some of the misinformed posts on economic issues here.

Here is all you need to know:

- Gold is money, and has been considered money by all civilizations on earth for thousands of years. - Gold does not decay, rust, degrade, or decompose in any way over time. - Gold cannot be printed, duplicated, or fabricated in any way. - Gold, because of it's unique color and atomic weight is almost impossible to imitate.

Gold is real money that holds it's value over time. It is not in a bubble. What is happening is that the bubble of fiat currency is deflating against gold. Gold holds it's value in a remarkable manner over time. You will find, for example, that a fine tailored men's suit has cost about one ounce of gold for hundreds of years.

When you figure out the fiat currency is the real "stupid" you will probably wish you had some gold. But, by then, it will probably be too late.

"Gold is money, and has been considered money by all civilizations on earth for thousands of years."

Actually, no - the Inca's used textiles and animals for currency, and gold was used for ceremonial purposes (that last part iirc, it's been a few years since I was in Peru). The reason was that gold was plentiful for them, so its main reason for using it now and elsewhere didn't exist for them.

Apart from that, 'gold is money' doesn't even make sense. 'money' is something that has value, and 'value' is in the eye of the beholder. If you want to argue that gold has a longer historical track record as a holder of value than paper money or any other economic theory about gold, fine - but you sound like a crackpot gold bug, and if that is really the case, please take your intellectually dishonest nonsense elsewhere.

The Incas had vaults and palaces full of gold. Just because the peasants of Inca times couldn't afford any, and bartered with textiles and animals, doesn't mean the gold wasn't valued by the ruling class.

Please take your intellectually dishonest opinion somewhere else. The fact is that gold can be converted into any currency in the world, in any country in the world. I can walk into a bank in Zimbabwe with a gold eagle and walk out with several $trillion Zimbabwe dollars in fiat currency.

As we speak, Gold just reached $1900 USD an ounce today. Which would you rather have stuck in a safe back in 2009? A gold eagle, or a $1000 in US currency?

Inca rulers and the upper class used gold for decoration and to make things like tableware from - the point of this discussion is whether it was used as currency, which it wasn't. How are you going to call something a currency when it's only hanging on the wall of the upper 2% of society? I'm not sure what point you're trying to make, but you said that gold was used by all societies of the last 1000's of years as a currency, but it flat out isn't. Most societies, yes, but not all - and that's important, because it shows that in places where there is a relative abundance of gold, it's not good as a currency (the non-use of gold in Inca times was not solely because of high supply, I'm not interested in arguing details on Inca culture and economics here because frankly I don't know much more about it than what a couple of tour guides told me).

Anyway, let's go back to 2007. A house in Phoenix that sold for 250k in 2004 just reached one million. Which would you have rather bought back in 2004? That house, or a gold eagle?

My point - it's easy to make a 'case' with perfect hindsight. There are several drivers to the current high price of gold; people diversifying their portfolios into precious metals, Chinese millionaire who have limited options for storing value, increasing demand from emerging markets for jewelry. That's not the point; the point is that you are claiming that gold has 'intrinsic' value ('Gold is real money that holds it's value over time.'). That's bullshit, plain and simple. Yes, gold has historically been a relatively constant value store, but there is nothing intrinsically valuable about it, and (the vast majority of) those claiming it is are alarmist nutcases with little grasp of economics.

> The fact is that gold can be converted into any currency in the world, in any country in the world.

That wasn't true in the US from the early 1930s until the 1970s.

Gold is a fungible item but it is definitely not money. You can't walk into a supermarket and buy a weeks worth of groceries with it. You can exchange it with someone, possible the store manager, for what he thinks it's worth. This will be far less than the gold market because now he has to find a way to exchange or store it. And the cycle continues.

You can walk into a bank anywhere in the world and convert it into local currency. That's as close to money as you're likely to find.

Edit: I should have said "coin dealer." To the reply below in Cork Ireland - I see you have a convenient merchant in your very town that will be happy to convert gold coins into cash:

http://www.dublincoinauction.com/index.php?page=index

I'm not sure what world you're living in, but none of the banks in my (medium-sized middle-American) city buy or sell gold. I have to go to a coin dealer, pawn shop, or one of those "WE BUY GOLD" places. A used guitar would be just as easy to convert to cash.

I'm in Cork, Ireland. Second-largest city in the country.

I'm gonna bet you €10 right now (or an equivalent value of the element of your choice, if you insist) that there's not a bank within 20 miles of here where I can walk in with gold and walk out with cash.

You can walk into a pawn shop anywhere in the world and convert anything into local currency. That doesn't seem to prove very much.

So a paper dollar bill has "value"? Scarcity provides value.

Read this and let's talk some more:

http://johnlaw0.wordpress.com/2011/08/23/why-the-global-fina...

I like to think about money this way: when the world ends and we are left in some of post-apocalyptic zombie epic society do you think that gold will still be valuable? Gold cannot feed you, protect you, or help you survive in any way. Besides being very resistant to corrosion and very malleable, gold really doesn't have that many special properties.

Really the only reason gold is considered to be so valuable is because its rare. But if you really want to talk about money, then goods and materials have far more intrinsic value than gold.

In fact, your post is totally wrong. Most currency was very nonstandard, with all sorts of alloys and rare metals being used.

How is my post wrong? Name one fiat currency in the history of the world that has not eventually been devalued and become worthless over time.

Every currency that has crumbled has had one thing in common - it used to be backed by gold, silver, or some other precious resource, and then due to the need of government to print more money, the backing was removed.

Why are we as humans destined to learn this lesson the hard way every few decades? Because people have a short memory and forget history. Once confidence in a currency has eroded no amount of it can be worth almost anything. See Germany during the Weimar republic - people carrying wheelbarrows full of paper bills to buy a loaf of bread.

I'm not saying that's going to happen tomorrow in the US, but currency devaluation is a slippery slope and it is happening all around us.

your post is wrong in its claim that all civilizations have used gold as currency. In fact most civilizations until recently didnt really have an official currency. Furthermore, raw materials such as food were far more commonly traded. Taxes, until recently, were collected in raw goods.

Im not really sure why you want to go back to the gold standard so badly. Do you realize that the reason technologies like the internet have grown so fast is because we have a fiat currency? This allows people, especially small and new businesses, to borrow effectively.

Gold backed money and borrowing are not mutually exclusive.

In a post-apocalyptic world, will dollars, yen, or euro still be valuable? Your assertion is absurd because you're expecting gold-backed money to do more than fiat money does.

Your comment is an instance where I wish I could see the number of upvotes, to gauge how many people corroborated this.

For lack of that, can someone comment as to how valid this is? It sounds valid, I would just appreciate another data point.

Read this: http://johnlaw0.wordpress.com/2011/08/23/why-the-global-fina...

It's currently 4 points now. I don't expect most people on HN to understand modern monetary theory, but at least a few do.

> Gold is money, and has been considered money by all civilizations on earth for thousands of years.

That is the historical value i was talking about, or how it is seen as money today? In which civilization can you buy your groceries with it?

I never said fiat currency is there to invest, if you put your money in something that costs just to have it and you can't do anything with it then do it. For the unrealistic case that there comes a new gold based currency than you have no advantage over anyone else.

I call this stupid and misinformed.

You can walk into a bank in any country in the world and convert it into a local currency. How is this not money, or equivalent to money?

> Gold holds it's value in a remarkable manner over time. You will find, for example, that a fine tailored men's suit has cost about one ounce of gold for hundreds of years.

Can you provide a citation for this?

Wouldn't you find the same thing to be true of other types of resource/materials that had no correlation to the manufacturer of suits - that their monetary value moves in the same direction, likely due to the overall level of inflation in the economy?

Over long time scales the relative value of things can change a lot.

Salt and Grains have both lost a lot of their relative value over time. Diamonds are actually worth far more now than they were in the past. Gold has maintained it's value fairly in Europe for a long time, but it was not worth all that much in south America. Unfortunately, for the gold bugs out there gold’s relative value often changes rapidly in the short time frame.

We can actually create gold today. Granted crating a 'tiny' amount of radioative gold is not particularly sensible but it's still possible.

It costs more to produce than the market price => it can't be counterfeited.

I see your point, but if it cost more to produce than the market price then nobody would mine gold. What separates gold from most other things is its durability not it's rarity. Gold from mined hundreds of years ago is just as valuable as fresh gold so the amount of new gold entering the market each year has little impact on its supply.

By produce, I mean producing it using nuclear reactors/radioactivity from other elements, not mining.

I edited that comment, but more generally do you see a real difference between say extracting 10trillion dollars’ worth of gold from the world’s oceans from manufacturing it? With Diamonds I can see the appeal of natural gems but with gold it’s next to meaningless.

My point was that that a govt or bank can't "cheat" by leveraging it or counterfeiting it. Yes, if very large accessible reserves were found, one's savings in gold would be hurt but it would would not happen simply at the diktat of a government. The fact that you can mine it or produce isotopes does not change the fact. I did not say anything about its inherent value.

> all civilizations on earth

Not all. Silver was money in China. A significant fact because for several centuries European nations wanted Chinese goods but China wanted nothing from western barbarians but their silver.

Silver was money, and so was gold.

Gold is not money. Gold is an asset. Dollars, Yen, Euros are money. Assets can be converted to money but assets are not money. Money is something that is commonly and readily accepted in exchange for goods or services.

Can gold be money? Sure if everyone accepted it but shells, cool rocks or toe nail clippings can be money too.

Page 6 of this .PDF document

http://pubs.usgs.gov/of/2000/of00-389/of00-389.pdf

has a Figure 6 that shows a 20th Century trend line (with informative commentary) and a fluctuation graph for the price of gold in constant (inflation-adjusted) United States dollars. Other sources on "gold in constant dollars" that one can find on Google show how the price of gold has been bouncing up and down in relation to the United States dollar, usually with trend lines that only cover very recent years (when the trend has mostly been up for gold in relation to the dollar). I have a friend who invested all his personal savings in gold around 1980, when gold was last regarded as a reliable inflation hedge, and he lost a lot of money during the following decade as he had to sell off gold at declining value when he needed cash.

This comment on the market not quite a decade ago,

http://old.nationalreview.com/kudlow/kudlow200312150909.asp

also shows that gold can bounce up and down in price, relative to the dollar. Any investment could be a safe investment if you perfectly predict the future, and for the last few years gold has looked like a very good investment, but I wouldn't count on any investment being a sure thing over the long term. "The market can remain irrational longer than you can remain solvent" is still the best advice.

People are not buying gold because they think it will become the basis of a new monetary system, they're buying it because it's one of the few assets that are small, portable can be easily and discreetly sold and which rises in value during economic uncertainty. The goal is to hold an asset which will survive the devaluation of currency and is no one else's liability and it is doing just that, right now.

Trick is, of the people who are buying gold, almost no-one is buying physical gold. So its physical properties are irrelevant.

It's almost entirely being bought either on speculation that it will continue to rise in price, or as a hedge against inflation. And for that purpose, they might as well be buying giant stone discs that lay beneath the ocean.

> the monetary value is merely historical

In theory, yes. However, the all-time high price that one can get for gold today is actual and current.

A real currency is widely accepted, gold is not. Gold is very unhandy, the article is about one example why.

I mean "current" as in today, not historical. I didn't call it a currency, I said it was valuable. I agree that gold is entirely useless - you can't eat it, and it is unhandy; however the gold price today says that for all practical purposes, gold is very valuable right now. Probably because of lack of faith in paper fiat currency right now.

This may change; it may be a bubble that collapses if and when faith in paper fiat currency is restored (you could read that as gold filling a temporary but valuable role as a hedge against unstable currencies). Or new deposits of gold could be found; or new ways of extracting it could arise.

However the supply of gold is quite limited; it's not like diamond where the only difference between very expensive diamond and cheat-as-dirt coal is a detail of removing impurities and rearranging the atoms.

When you don't believe in currency there are unlimited ways to invest your money somewhere else, when you don't believe in corporations there are much more conservative alternatives like farm land. In my opinion oil is a better investment than gold, the applications are endless but i personally wouldn't because of its volatility.

Gold is not entirely useless - it is used in small amounts in some electronics manufacturing (as a coating to improve conduction and resist corrosion for pins on CPUs, etc). It is also biologically inert, so if it were cheaper, it might find use in implanted prosthesics.

Where is gold not accepted? In which country? It's not as handy but it is valuable because you can't make more of it.

Gold is not accepted at my local supermarket, and probably not yours either. They take cash or card, but not gold. You have to convert it into currency first. You can do this in any country if you know where to go, but you get the point - it's not as handy as paper money. Suppose you have a 1 ounce gold coin (worth USD 1882 today) and you owe your friend $100. You have the money, but how do you pay him? Do you file bits off the coin, or do you ask for change from $1882 ?

"Gold is not accepted at my local supermarket, and probably not yours either."

Neither is any other "foreign currency" which also needs to be "exchanged to local currency first".

See that's the thing the markets are trying to figure out right now ... is gold an industrial commodity? In which case, yes it is terribly overpriced! Or, is it in a time of world-wide currency crises reviving its historical role as a store of value, an AAAA++ rated, supra-sovereign "monetary asset" (rather than granted an immediate for-daily-barter currency) with no debt burden and no counterparty risk? If yes, it might still be vastly undervalued!

My supermarket doesn't take dollars either, doesn't mean the dollar isn't a useful currency.

And we're talking about a country reserve, not exactly hand money.

The original statement was "A real currency is widely accepted, gold is not". The following question was "Where is gold not accepted?"

My reply of "At the supermarket" is, I think, a succinct and correct response about the basic difference between currency and valuables. My local supermarket won't take US dollars either since I'm not in the USA. You know well enough that supermarkets in the USA do take dollars, and no supermarket anywhere takes gold (if you find one, let me know what it gives as change). The point still stands. If I'm wrong, I'd appreciate more information on why along with the down-votes.

This downvote == disagreeing is so annoying, this prevents discussions. It is one thing when someone gives an upvote for agreeing but downvotes are for insulting and off topic posts.

But it's completely irrelevant to this discussion. Context matters. And the fact that there are or not supermarkets that accept a certain currency is irrelevant to its usefulness as a reserve.

It'd actually be an interesting experiment to see what you could buy with smaller-denomination gold coins. I would bet some number of independent businessmen (but not large chain stores) would be willing to accept, say, the 1/10-oz American Gold Eagle as equivalent to around $180.

If that caught on, the next logical step would be for more counterfeit gold coins to come into circulation. Do these businessmen have the energy to try to detect fraud in two kinds of currency? Especially as gold coin fraud doesn't have the same harsh legal penalties as counterfeiting paper money.

True story (somewhat relevant): I once took over a web contract from a company that failed to deliver. Their website had a tab for helping customers start using gold for payments. I requested and accepted payment in US dollars. There is not a chance I would have accepted gold for payment.

What if someone finds a gigantic Deposit

of paper? And starts printing off currency? What makes gold valuable is that it is scarce, we know with quite a bit of certainty how much is below and above the ground, and is has a background of this usage. As we are seeing with "quantitative easing," paper is not scarce.

I the people lose trust in a country the currency goes down exactly because of this. This can also be a good thing, for example when the economy is not competitive and the government has always enough money to provide the basic needs. Not comparable to a resource.

Everybody thinks he knows about economics but does lack basic theories, i don't want explain in every discussion how inflation works.

PS: Please stop downvoting me just because you disagree.

I understand the benefits of monetary inflation in an expanding economy. I also think that "the spontaneous remonetization of precious metals is a Nash equilibrium," or in other words, inevitable. Read this, from 2006:

Why the Global Financial System is About To Collapse

http://johnlaw0.wordpress.com/2011/08/23/why-the-global-fina...

I have not enough time right now to read this whole thing but i browsed it, there is enough stuff to argue with he mentions taxes and all the important elements but it sounds alarmist nonetheless.

Maybe i have to take that back, but i have this problem very often when i argue about these things.

Please have a read and let me know what you think. It might be alarmist but he makes a great argument.

Judging by the last millenium of history, the inevitability of spontaneous remonetization is greatly exaggerated.

First, it has happened within my grandparents' lifetime.(Weimar Germany, for example.)

Second, inevitability doesn't have a timeline. It could be in a thousand years or tomorrow; that's not the point. The point is: it is expected to happen at some point.

What if someone finds a gigantic Deposit or a way to cheaply produce Gold?

Ah, yes, the Fusion Codicil: http://bit.ly/oQOxIr

(man, linking to something with quotes in it is hard, here)

http://www.google.com/search?q=%22fusion+codicil%22

Works for me. Un-percented quotation marks are not valid URL characters. What browser let you copy them out of the URL bar without escaping them?

Firefox. It does this with parentheses as well.

But I thought I'd tried %22 and had it disappear. Could be lack of coffee.

If someone finds a way to cheaply produce Gold, most of our problems would be solved.

Once humanakind has the ability to cheaply produce elements, we can start building food replicators.

While we're talking about fantasy technology anyway, creating atoms of an element is a very different problem to rearranging existing atoms into food.

Maybe we're on different pages, but in my fantasy both technologies convert energy into matter, not rearranging existing atoms into food.

Use bitcoins? :-p

My first thought as well.

Bitcoin is often said to have many of the properties of gold, not least its scarcity.

But here is a clear example of how bitcoin trumps gold, people can move large amounts of bitcoin in a short amount of time with very little risk. Bitcoin users are already doing this.

http://blockexplorer.com/block/0000000000022043f9ea2c298f338...

Total BTC?: 416300.33

At todays bitcoin market value that is 4,605,201.67 USD.

Still some way off 12 billion I grant you, but astonishing considering gold has been used as currency for thousands of years and bitcoin is less than 3 years old.

> But here is a clear example of how bitcoin trumps gold, people can move large amounts of bitcoin in a short amount of time with very little risk. Bitcoin users are already doing this.

I'd imagine that governments like the fact that moving their gold is hard, slow, and risky.

Not so astonishing! Multiply those 3 years times 1000s and you get from 4m to 12bn.

This would assume currency value stability over 1000s of years of course, not possible even over decades.

Reply on news.ycombinator.com