Germany to Repatriate Some of Its Gold Reserves

Some central banks already sold their gold http://en.wikipedia.org/wiki/Sale_of_UK_gold_reserves,_1999-...

Maybe the bubble is in fiat currency?

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

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

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

Isn't it even much, much more interesting that paper money is just paper with fancy colors? And that most of the money in the world are just 0's and 1's residing inside databases?

Government do both love and hate gold: the problem is that socialist government can confiscate savings by creating inflation but they cannot confiscate gold (well, non-democratic government can and the US certainly already tried to confiscate citizen's physical gold, but it didn't work out too well).

Then you're confusing hedging and speculation in the case of people locking physical gold away. If people were speculating they'd be buying / selling physical gold. People typically don't do that. The ones speculating do it with paper gold. The ones with physical gold typically do hedge.

Then central banks already sold lots of gold. Germany is bringing back its gold because the situation is critical in Europe, with a first state that already defaulted and several others which are going to default too. At 25% unemployment in Spain there's simply no way they'll come back soon enough. Their banking sector needs a $400bn bailout or the entire house of (eurozone) cards collapses.

Gold is totally undervaluated. Some estimates it could go up by as much as 10x.

The reason Germany is doing it now is because it's more than likely that the US lied about the actual amount of physical in the US and they (the germans) don't want to be the fools the day everything crashes.

The other reason gold is going to skyrocket is that there are so many buggy financial products linked to gold that are going to be worth close to zero once the shit hit the fan. Paper gold is going to be worth as much as toilet paper. Should that happen, real physical gold would skyrocket.

Yet another reason it cannot possibly be undervaluated is that the USD doesn't correspond to market fundamentals anymore: the USD is artificially high and the system is not a capitalist system anymore. The cost of money creation is zero and the system cannot possibly work like that.

Governements have already tried to manipulate gold prices by selling huge amount of gold but to no avail.

There's however one thing that could bring the price of gold down: a scientific allowing to cheaply create gold. In a way we can do it today, but it requires materials even rarer than gold, so it's not economically practical.

I'm personally hedging myself against a major economical SNAFU with about 20% of my savings in physical gold (and 20% in other currencies). Should a real shit hit the fan, I'd still be quite rich compared to most people.

That's the thing: it's not speculation. It's an hedge. And, as I'm not speculating, I don't give a flying if the price of gold goes down. Because I don't see it as $ xxx or yyy EUR: I see at "zzz gold". And should a huge SNAFU happen later on, I'll have zzz gold and be quite wealthy.

And that's what Germany is doing: hedging against a major SNAFU (like a split-up of the eurozone, hyperinflation in the eurozone and Germany's exit, etc.).

  o In a currency crisis, Gold skyrockets in value. 
  o No counter party risk.  

For those in HN interested in a straightforward way of owning and storing gold in Zurich/London/New York - I highly recommend bullionvault.com. It has a nice geeky multi-party audit system as well - so you know your Gold really is there.

Societies need some form of hard to falsify currency to enable indirect trade, so you don't have to lug around your corn to go buy chickens. Gold is mostly useless, doesn't spoil, and there isn't very much of it on earth. So you can use gold to make some nice looking coins and everyone can relatively easily check they're real and can't just make more of it. The crappy side effect is as you mention that it creates a large incentive to go mine for gold. For the purposes of currency it would be nicer if all the gold was already mined.

Today, with reputable central banks you don't need gold anymore. Gold's proponents usually mention that a gold standard would set a fixed money supply that can't be altered by a central banker. Yet if that's what you want you could just change the law to impose that rule on the central bank, just as you'd need to change the law to move to a gold standard. So the two approaches are really same, except the non-gold one doesn't create a bunch of digging jobs in a gold mine somewhere.

Gold cannot be printed ad infinitum. Each year roughly 2500 tons of the stuff is mined, which adds around 1.5% to the global above ground stock of gold. This 1.5% growth rate is declining, while the amount of new paper money that is created each year is increasing.

Bottom line is it the only real measure of value left in the world.

Gold has certain attributes which make it very useful under extremely rare circumstances. But those circumstances can't be completely ruled out or discounted so we still have and use gold.

There are a number of people who would like to see the return of hard money, which is to say money "backed" by gold or another metal (read: directly and unequivocally exchangable for, at an officially set and guaranteed rate of exchange, eg. a gold standard). So what "backs" gold?

Gold is fairly useless, on this there seems little dispute. You can't eat it, it won't keep you warm or light the dark etc. So it has no inherent value.

It has no practical utility except that it is exchangable for things one does actually have utility for, such as food, clothing, energy etc.

So... it has no value, but we value it. People value gold. We give it value. Why? It's useless.

Gold is given value by people, so even if we have a currency "backed" by gold, the currency is still, via gold, backed by the willingness of others to accept gold, which is itself based upon the expectation that others will do likewise in the future.

So people value gold because people value gold. Must have been a funny experience being the very first person to value gold, when you had no precedent and thus nothing to give you confidence that someone else might give you value for it later. Unless you were so wealthy that you didn't necessarily expect to need that value again, so then who cares? If you had so much value that all your other possible needs were met, and still had a healthy regular income, what would you do with that extra income? You'd have to be super-productive, or own super-productive assets to earn like that. But you wouldn't want to buy stuff just because you could (would you?), not if you didn't actually have a use for it, and especially not if others did (like food or something, and you buy it just because you can; the price would go up and you might actually be preventing some people from eating). That'd be wasteful and mean. Come to think of it, if you were wealthy on that sort of scale and you started buying gold (and you were the first to do so) just for the hell of it, you'd be making a market for it, so then it would have value for others... by selling it to you. You're giving them value for it. No one needed it for anything else, so no one is disadvantaged. Hey, you're actually doing others a favour, giving them value for something useless. So others can use your extra productivity. That's pretty cool. That's really the opposite of hoarding, isn't it? You're making more than you need, and you're not wasting it.

I think the general population should look kindly upon people with gold in that case, because if you have gold (useless stuff) you must have produced value you didn't consume, and traded it for useless gold (unless you didn't pay for your gold). You valued gold, which was good for whoever sold it to you, and you didn't let any value go to waste by buying useful stuff you didn't actually need and depriving someone less wealthy of something useful. And then not even using it. Therefore some one with gold should have credibility in the eyes of others, all else being equal, because they exchanged a surplus of useful stuff for useless stuff.

But there must be other people out there producing too much for their own needs too. What do they do with their surplus value? Hey, if they wanted to buy gold too (probably for much the same reasons?) then you wouldn't be the only one making the market anymore! That means you could even sell some later, if you ever needed to too. But you might never need to. So if gold were to be bought for these reasons by the super-productive, a lot of it might never come back on the market, just because it doesn't need to. So it's not actually consumed as such (because it doesn't have a use, nor does it wither away), but it's not on the market either. Bought, but not sold as much. Wealthy people absorbing useless stuff in exchange for useful stuff. Who knew?

I suppose little guys could get in on this gold action too... if they were making a bit more value than they were using, they could buy gold (ok, probably just small amounts), but they could buy however much their excess value will fetch, and sell it into this market made by super-producers later. Because it's durable, eh? And small. And you don't need to do anything to it, you know, like maintainence, or learn how to use it (like if you bought an orchard or a tonne of iron ore or something, then you'd have to know (and want to know) or learn how to manage an orchard, or have room to store the iron (and how do you stop it going rusty?)). What if you wanted to go somewhere else? You could take your gold with you, but I don't know about the other stuff; that'd be a bit more involved. Gold doesn't seem to give you any hassles. Unless you lose it. So really, everyone who produced more than they consumed could save their value in gold, if they wanted to. Actually, that's a good thing too, because then people who might not otherwise bother could produce more value than they need, because they can save the excess and use it later by buying and later selling some gold. Good for people who don't want hassles, but would like to save. Most other assets are going to require management, or they'll crap out eventually. The economy would be a bit more productive than it otherwise would, wouldn't it?

So, in a nutshell (presuming the preceding logic is sound), people put value into gold because they have confidence other people will give them value for that gold later, should they want to use it (the value) to eat, or keep warm, or light the dark etc, or because they have too much value and they just don't want it wasted. Gold is storing value for people. It is making present surplus value both durable and fungible for future use. Saving it. Seems fair; there appear to be willing buyers and willing sellers, so both must be getting something out of the transaction.

So gold appears to be backed by people and their willingness to trade useful stuff for it. Seems like people who produce surplus are confident that others will continue to produce surplus in the future and thus create a continuous demand for gold; either that or they are happy to make their surplus available to others and buying gold is just fun. Seems kind of like when you buy gold you are putting your trust in the market as a whole. That seems a bit different than when you buy a bond for example, because then you're just trusting whoever issued the bond. So with gold the whole market is your counterparty, so to speak.

The fact that gold is useless appears to make it useful. ! Really useful in fact, because it's encouraging the economy to grow and make more useful stuff, and minimising waste. Wouldn't that actually make the useful stuff cheaper, if there were more of it than otherwise? And it's helping people kinda secure their future, by being able to save for it, that's gotta help them worry less right? Get sick, or old, and you can't provide for yourself or your family or whatever and you could sell some gold, eh? Yield: peace of mind. What's that worth?

So how much will gold be worth later, if you want to sell? Shouldn't be too hard to figure out; it's just supply and demand.

Supply: newly mined gold, and old stock being sold. The flow of newly mined gold seems pretty static. Apparently all the low hanging fruit is long gone, so these days they're mostly mining leaner deposits and it's pretty slow going. Old stock. Well about 170,000 tonnes have been mined altogether, so I guess all of that could potentially be flow if everyone wanted to sell all their gold at the same time. It wouldn't be worth much then.

Tired of rambling, might come back to this later.

I don't know what really happened, but I think it is worth considering that the recent audit by the Buba may have revealed more about the FED than anyone wants admit publicly.