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Comment by sek | Hacker News Reader

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.

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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.

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...

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.

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?

> 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.

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.

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.

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.

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.

> 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 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.

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.

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 ?

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.

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.

"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!

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.

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.

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.

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