How much gold is there in the world? | Hacker News Reader

How much gold is there in the world?

bbc.co.uk

46 pointsJacobAldridge65 comments

The longer quote from Warren Buffett is very interesting

Today the world’s gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce – gold’s price as I write this – its value would be $9.6 trillion. Call this cube pile A.

Let’s now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world’s most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B?

Beyond the staggering valuation given the existing stock of gold, current prices make today’s annual production of gold command about $160 billion. Buyers – whether jewelry and industrial users, frightened individuals, or speculators – must continually absorb this additional supply to merely maintain an equilibrium at present prices.

A century from now the 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton, and other crops – and will continue to produce that valuable bounty, whatever the currency may be. Exxon Mobil will probably have delivered trillions of dollars in dividends to its owners and will also hold assets worth many more trillions (and, remember, you get 16 Exxons). The 170,000 tons of gold will be unchanged in size and still incapable of producing anything.

You can fondle the cube, but it will not respond.

>At $1,750 per ounce – gold’s price as I write this – its value would be $9.6 trillion

Where did you get this price from? It's 1598USD/ounce.

I agree with your point. Given its rarity, gold has always been treated by a lot of cultures to be a safe commodity. People will always give you money in return for it - where-ever you go. It doesn't produce or generate anything, but it has been and will always be used as a storage of wealth.

$1,750 was the price when Buffett wrote that.

On the other hand, we have invented a new energy source and no longer have much need for oil or farmland. Meanwhile, gold will most likely still enjoy its status as a luxury item which people will clamour for no matter what the price (our needs are limited, but our wants are unlimited...).

If you're presuming a new invention that makes farm land and oil irrelevant (a star trek replicator) then it's likely gold can be produced by this new method as for there to be unlimited supply, making your pile worthless

You have a point, although I suspect you'd end up with a division in mindshare between 'synth gold' and 'real gold', which might complicate the matter.

But I was thinking more along the lines that people will be constantly trying to invent replacements for oil and more cost effective food stuffs, whereas there's far less need for a replacement for gold (or gold mining). Besides, I imagine even if we did invent a replicator, it would still need the raw material input so it wouldn't really affect the demand for gold. It would just effect how much land we need to grow food and things like that.

> You can fondle the cube, but it will not respond.

It may not, but I certainly will. Joking aside, there is value in having a store of value. Whether it be gold, diamonds, or green pieces of paper. Not everything has to produce something. Some things merely facilitate.

Exactly. The true value of the gold for the investor that chooses to buy it instead, is that in the future he will be exchange it for whatever he wants then at (hopefully) close to the same exchange rate he bought it for. He believes it's value won't decay with time, or at least that there is less risk with it than with his other options.

Buffet's argument would be just as valid if it was applied to a pile of US dollars for example.

And yet people argue that gold is somehow more real than, say, Bitcoins.

Except gold has an actual use, and it seems to be really rare.

Diamonds, bits of green paper, tulip bulbs, are all items that are not actually rare.

True, but what % of your money should be in gold?

If I had a $20 million net-worth, I'd hide maybe $500K to $1mil in gold /silver coins around "just in case."

If you slightly modify the setting and say pile A is an eternal worldwide monopoly on gold, then it might be preferrable to B.

Then you are not buying the gold, but investing in Exxon Auric, newly the worlds most profitable company

I think buffet is cautioning against seeing gold as an investment (buy now wait for the price to go up). He compares it to real productive investments - and as such explains why he is rich and everyone who has said store of value is useful is not rich

The only difference is, that you have to actively engage in order to keep Exxon running and the farmlands productive. Plus think of all the lobbyists you have to hire to keep the government away from taking your farming subsidies and oil rights.

With the gold, you just dig a hole, put it in the ground and you know that when there is a time you need it, it will most likely be of the same value than when you put it there in the first place. It is about how much capital you have, your personal views on global economic stability, and how actively you are willing to work that capital.

Sure, investing in running farms takes more day to day work, and the probability of seeing your entire non-diversified portfolio wiped out might be somewhat higher.

But gold prices are far from stable: they're at least as volatile as the stock market albeit tending to move in the opposite direction. They can be hugely affected by changes in legislation which affect the perceived risk or return to actual investments, not to mention exchange and convertibility restrictions or the vague possibility of returning to some sort of gold standard, so anyone holding a vast fortune in gold can't really afford not to have lobbyists and PR campaigns (an interesting corollary is that as the real purchasing power of a gold portfolios rises when the economy as a whole stutters, "gold bugs" generally don't have a vested interest in economic stability...)

I don't get it. Warren Buffet seems to be wrong, which is somewhat unlikely.

First, there is only one "world's most profitable" Exxon Mobil. You can't buy 16 of them. Second, oil will run out. Sure offshore drilling will extend how long we can produce it for, even one Exxon Mobil producing at this rate doesn't look like it will last much longer than a century [1]. It is likely that the price of oil will go up (I think orders of magnitude) as the reserves dry up, but not enough to keep producing $40 billion/year. As one of my professors in college said "Your children will not believe you burnt this stuff" as it is so useful in other ways.

Second, oil is not end-all be-all. Cold fusion [2] is coming, and it will make energy cost a rounding error as compared to today's cost. It is not clear when there is a good chance it will happen within the next 100 years. This will mark a singularity past which even the investment genius of Warren Buffet is unlikely to see.

Because of point #2, crop fields may lose their value. Why bother growing things under the sun, when we could grow them using an artificial energy source much closer to us, that we control? If all of a sudden, every household has a self-regulated food growing companion cube, powered by dirt cheap energy, why bother with corn fields?

I suppose his larger point is that you are better off investing your money in companies that produce value in the world vs holding onto value. I would agree with that. However, for the love of god, don't buy 16 Exxon Mobils! If you have that kind of money, talk to me instead. I have a very profitable bridge to sell you!

[1] http://en.wikipedia.org/wiki/Oil_reserves

[2] https://en.wikipedia.org/wiki/Fusion_power

How is cold fusion related to a technology singularity?

How will basically free energy affect your day to day life?

First, there is only one "world's most profitable" Exxon Mobil. You can't buy 16 of them. Second, oil will run out

You missed his point: you can buy 16 Exxons or one Exxon, one Google, one MSFT, one GM, one GS....and so on. The idea was that stocks perform better given that companies are always earning money (at least many of them)

Right, I got that, I just think his example is somewhat contrived. To me it sounded one step away from "If I had $20 and a time machine".

I am stuck wondering if this is an ironic comment are not.

Obviously you wouldn't buy 16 Exxon Mobils. He used it as an extremely profitable company, and I guess you could say just buy the top 16 most profitable companies.

Cold fusion? Any recent research backing your claims? It's been pretty well characterized as junk science since the 90s [1,2].

However,

>I suppose his larger point is that you are better off investing your money in companies that produce value in the world vs holding onto value.

spot on.

[1] http://en.wikipedia.org/wiki/Cold_fusion [2] http://undsci.berkeley.edu/article/0_0_0/cold_fusion_12

Buffet jr, always the rebel. Let's hear what his father Howard Buffet had to say about gold. From Businessinsider: "I warn you that politicians of both parties will oppose the restoration of gold, although they may outwardly seemingly favor it, unless you are willing to surrender your children and your country to galloping inflation, war and slavery then this cause demands your support.

And sure enough: Have a look at the purchasing power of the US Dollar from 1900 - 2010: http://i.minus.com/ibdqRbrSZDaQ6I.jpg

More by Howard Buffet: http://www.businessinsider.com/tired-of-warren-buffett-trash...

That graph is utterly meaningless without a corresponding graph of income per hour of labor (in dollars).

This is a deep misunderstand of what gold is.

Nobody wants "All the money in the world". (I saw very cute afterschool-special many years ago, about a kid who found a leprechaun and got 3 wishes, and wished for all the money in the world. The wrld economy froze until he wished he never wished that.)

Money (including gold) functions as a symbol of debt, and it works when it is distributed throughout the economy as a lubricant. Which would you prefer to have: all the motor oil in the world, all the machines in the world, but no oil? Both are worthless without a measure of the other.

Most interesting point is that gold is being "consumed" for the first time.

You're right, some of it gets lost, but where I live there's a company that recycles all kinds of electronic equipment, circuit boards, mobile phones, .... The company's name is Umicore, they recover the gold at a cost that's cheaper than mining companies can. I can't find a source to back up that claim ( I saw a video ) but they get other precious metals out of it as well, which reduces the cost. Some website even sell Umicore gold bars. Although, I wouldn't recommend that you buy those bars, the price per gram is way too much, imo.

I think this link backs up your claim on what Umicore does http://www.preciousmetals.umicore.com/PMR/

Wouldn't burying gold in funeral ceremonies classify as consuming as well?

I would say no, because the cost of digging it up again is very low and it's going to happen eventually.

One would hope that this is true in Tutankhamun's case; although we cannot compute how many other priceless archaeological treasures have been melted down for their precious metal content.

Another quite interesting article on gold - http://www.telegraph.co.uk/culture/qi/8667421/QI-Quite-inter... - points out that electronic equipment is actually one of the best sources of gold nowdays. One ton of electronic scrap yields more gold than 17 tons of gold ore.

> One ton of electronic scrap yields more gold than 17 tons of gold ore.

Holy shit!

It would be nice to see if there is not more gold "sold" to investors than there actually is.

If that were the case, we could just declare that gold has been taken off of the gold standard.

Repo's, gold certificates etc. Good luck getting "your" physical allocation if everyone tried to take delivery of "there" of the underlying assets all at once.

This is the original form of a bank run: everybody wants to cash the goldsmiths oversold certificates at the same time.

I doubt that is the case in any great quantity. Many investors who buy gold do it because they think it is somehow safer than "paper money". They don't like to buy "paper gold" and that's why the biggest gold ETF (GLD) stores physical gold.

That said, there is of course a gold derivatives market. It seems to be rather small according to the survey cited in this article: http://www.ft.com/intl/cms/s/0/eb342ad4-daba-11e0-a58b-00144... (search for the link in Google to get around the paywall)

There most likely is. Even when the USD was on the gold standard, there were far more of these gold claim certificates we called dollars than the US had in gold reserves. This is the nature of fractional reserve banking, and it no doubt still takes place with gold.

But a key difference is that I have gold in my vault, and you have an oversold "gold" certificate, you can lose, but I can't.

When I have a dollar bill in my pocket, and the government floods the country with new dollar debt, my dollar inflates.

Make sure your gold doesn't have a tungsten center.

http://www.zerohedge.com/news/2012-09-24/get-your-fake-tungs...

AFAIK, the only way to make certain is via destructive physical inspection (drill a hole in it).

I watched a depressing documentary[1] about gold recovery in India.

People in a jewellery district would sweep the floor to recover the gold dust. Sometimes gold gets into the drains, so one guy takes a bucket and crawls into the drains to gather sludge, which he then tries to sell to other reclaimers. It's filthy, dangerous, work for little money.

Chemicals used are harsh and there's not much protection.

And then there are the people recovering electronic components from discarded computers. Cables are gathered in bundles and burned to get rid of the insulation. Burning plastics (on open fires, in the open air, with no worker protections) are nasty. Lack of education and equipment and skills mean the worthwhile bits are not recovered (from PCBs - no copper, gold, lead, etc) and any safety equipment is sold for cash. One of the episodes in [2] is particularly sad. A small boy smashes electrolytic capacitors off a PCB with a rock to try to sell to someone else. It's preferable that young children don't work (UN rights of the child, etc) but if they must work at least give them something that's not utterly pointless.

Corruption is rife.[3]

And children[4] feel the need to work because they are poor. They're poor because they get paid a tiny amount of money for the work they do. (Don't fucking start with the 'cost of living' bollocks that always crops up on HN. $1.5 per day is a tiny amount of money no matter where you are.)

[1] (http://www.bbc.co.uk/programmes/b01n8278)

[2] (http://www.imdb.com/title/tt1984404/)

[3 (http://www.theatlantic.com/international/print/2012/03/the-w...)

[4] (http://www.irinnews.org/Report/94822/KENYA-Gold-mining-beats...)

There's a name for that occupation: http://en.wikipedia.org/wiki/Tosher

The worst thing is that what you describe is a profitable business, even in London. Every jeweller shop gather floor swipes, drain sludge, ... and have them processed (edit: processing is done in the UK, that's normal job for a refiner). The recovery is in the thousands of pounds a month for a small shop. There is an amateur community in the US and UK that recycles gold from all sorts of electronic part for fun and profit.

You do not have to have miserable work condition to make a profit recycling gold. The sad thing is how little valuable is human life in India.

Another example, they flatten silver into gilding leaf by hand, with a hammer. They frequently break bones and become disabled (and out of work of course). Gilding leaf, especially silver, is cheap (like round wire, flat sheets), as you may imagine the machine that do that in Europe are extremely low tech, reliable and cheap. Yet, in India, it is even cheaper to use human labor to do that. Depressing.

Is the machine faster and more productive?

Then the issue is of upfront capital investment surely? No sane silversmith shop will hire 20 workers who need attention, break bones etc when 5 can operate a machine if the shop can ge the machine for free

(Of course firing all those workers now you have them may be harder)

It's unlikely to be true that indian business owners sit around saying "I would buy capital machinery, but it's sooo much more fun being evil and anyway human life is worthless round here. Unlike London where my cousin lives and I visited last week"

Yeah off on a strange rant there - basically saying "oh the Indian culture does not value human life so they don't bother buying machinery we Europeans have is flyin real close to racism - or wilful blindness. Have faith in rational actors and economics - there is always a rational explanation

The way it works is the following: workers pile outside the refiner and buy a lump of silver. They spend the day hammering away. Once it is flat, they sell it back to the refiner for a profit or use it to do stuff (dies, ...)

Unfortunately, there is no need for evil motivation, culture or racism. Good old economic and rational actors: humans to do the labour are just cheap and plentiful. I have no doubt that the very day it makes economic sense to use a machine, they will use machines. The reason we use machine in London is also simple: silvering leaf are 1GBP/g and silver grain is 0.6GBP/g. You would need to do hammer 300 sheet of silver per hour to earn minimum wage.

The gold craze in India is something I cannot possibly describe to somebody in the western civilization.

The thing is Gold is an amazing investment to make. Those who invest in it know it. Its practically zero risk, high return investment at practically no effort.

To give you simple statistics here in India. Only six years back Gold was around 1400-1500 rupees per gram, 10-12 years back it was around 650-700 rupees per gram, its now around 3000 rupees and growing.

Barring certain rare circumstances in Human history, price of gold has almost always grown.

Who wouldn't want gold? You can invest in small quantities, use it as jewellery, social status and makes the best investment.

This is how a bubble begins.

What if is was the value of the gold remained constant? And it is the value of the Ruupia that falls. Question: Have food and gasoline become equally expensive?

I hate gold. It is a relatively useless metal that comes at great environmental cost, with an over-inflated value driven by war and insecurity.

It's also recycling's greatest success story. Think of that. While other resources are consumed, gold isn't, and it's far from useless. It's simply more useful, at the price, at being a store of value.

> It is a relatively useless metal

Historically anyway, it's a very useful metal in the modern world (though its intrinsic value and its market price are completely unrelated)

By 'relatively useless' do you mean 'historically useful because it was a way to store tokens of wealth in a way that didn't decay/corrode'? And as mentioned already, there's plenty of uses for it in the modern world.

What happens if they come up with a way to make gold in 100 years?

Or a way to find/mine it far more easily before then?

Since they came up with a way to make perfect diamonds and their value still hasn't gone down, makes you wonder.

This comment sums up on why diamond's value hasn't gone down:

https://news.ycombinator.com/item?id=5404416

So, something similar might happen in the case of gold too.

Please CMIIW but I thought "perfect" diamonds were detectable as fake, still expensive and mainly used in industrial environments (grinding wheels).

Read swatkat's link (sibling comment), then read the story, that comment's parent. It makes a convincing case that the entire diamond market is rigged.

I suspect gold will prove a lot harder to manufacture than diamonds.

Gold is created in the explosion of a large supernova that was formed from the remnants of generations of supernova before, each explosion creating heavier and sometimes totally different elements.

All the Silver in the world was formed in a different chain of supernovae to the one that formed all the Gold in the world.

(A fact that blows my mind when I think too hard about it.)

http://www.world-science.net/othernews/120906_silver.htm

Diamonds need carbon and a fast-moving object to strike it. They are therefore relatively common and relatively easy to make. There is one meteor crater in Russia that contains 3000 years-worth of diamonds (at current consumption rates). It is considered uneconomical to mine for them.

You can create gold from mercury, but it costs more than it's worth and ends up being radioactive.

http://en.wikipedia.org/wiki/Synthesis_of_precious_metals#Go...

More likely is if we find a massive new source of gold. Price would plummet. This happened before. When the Spanish went over to the new world they hound massive amounts of silver and were able to mine it.

I believe the asteroid belt is heavily undermined. With the Soviet 'Energia' rocket system it was within reach.

Why is gold on the frontpage of HN? Not because of the strenght of gold itself, but because of the weakness of the other actors in this global tragedy; the currencies and the political class governing them. Aks the people of Ireland, Spain, Italy, Greece, Cyprus, Hungary, Vietnam, Iran, Argentina, etc about their faith in their currency and their leaders...

Irish person here. There is no distrust in the currency or banking system. No one's doing a run on the banks here.

Ireland was a traditional 19th century bubble

Ireland was also a traditional 2007 housing bubble ;-) The way the Cyprus debt was taken care of makes smart people of other indebted country's think twice about their savings.

Yahoo News: Big depositors at Cyprus' largest bank may be forced to accept losses of up to 60 percent, far more than initially estimated under the European rescue package to save the country from bankruptcy, officials said Saturday.

Deposits of more than 100,000 euros ($128,000) at the Bank of Cyprus will lose 37.5 percent in money that will be converted into bank shares, according to a central bank statement. In a second raid on these accounts, depositors also could lose up to 22.5 percent more, depending on what experts determine is needed to prop up the bank's reserves. The experts will have 90 days to figure that out.

The remaining 40 percent of big deposits at the Bank of Cyprus will be "temporarily frozen for liquidity reasons," but continue to accrue existing levels of interest plus another 10 percent, the central bank said. http://news.yahoo.com/bank-cyprus-big-savers-lose-60-percent...

Le Monde: Anything is possible now how much confidence is it possible to have in the single currency and the sacrosanct guarantee of bank deposits when customers of a European bank can wake up to find that part of their savings has disappeared overnight? http://mondediplo.com/2013/04/01nicosia

I'd say (the loss of) confidence is one of the main reasons there is so much talk about gold.

Ireland was also a traditional 2007 housing bubble ;-)

Sure, it was a housing bubble that popped around then. My point was that it wasn't fancy financial instruments or arcane hidden scams that broke it, it was an old fashioned "This thing (property) can only go up in value! Invest in it now, keep making more of those things (houses), invest now and you'll be able to flip your asset later for a higher price! It can't go down in value!" type bubble.

If everything was on bitcoin, you still could have had the irish property bubble happen, just like how there was bubbles like that when the currencies were gold based.

I have to respectfully disagree, …the expansion of money through debt is unsustainable and necessarily fuels and creates economic bubbles. This concentrates wealth in the hands of private banks as the populace is forced into debt simply to own a home and educate their children, hoping that the loans can be repaid by others going into debt in greater amounts later to purchase the assets they themselves have purchased through incurring large amounts of personal debt. However, debt expansion leads to price appreciation of assets through speculation as the financial market becomes riskier and this process is unsustainable in the long run, with the last cycle of indebted being wiped out when they cannot find anyone to buy the assets they themselves have purchased by going into massive debt.

http://wiki.mises.org/wiki/Criticism_of_fractional_reserve_b...

Reply on news.ycombinator.com