[tdees40]

So here's how this works. Gold bugs are big fans of buying gold. They have lots of gold. Their narrative of the financial system is that gold is the uber-asset that all other assets must be denominated in, and that fiat currency is doomed to collapse. The massive run-up of gold prices during the financial crisis played into this narrative, and despite the fact that mainstream economists, politicians, bankers, etc. still thought of it as a "barbarous relic" (Keynes), gold-bugs saw it as the key to a prosperous economy.

So now, gold prices have been weak for a few years, so they have to come up with a new narrative. And that narrative is global conspiracy. So you get groups like GATA [1] and Zero Hedge [2] pushing various stories about how gold is being squirreled away somewhere mysterious, or prices are being suppressed by faceless multinationals or what-have-you. Maybe it's true! I don't know, but there's never really been any evidence, and it just sounds like someone justifying a failed investment thesis.

[1] www.gata.org [2] zerohedge.com

[carsongross]

It's always good to think about what evidence would convince you that the other side has a point.

I lean towards the side that thinks that the central and money center banks (not faceless multinationals) are suppressing the price of gold via fractionally-reserved lending of physical gold. What would convince me that this is not the case would be a comprehensive audit of the Federal Reserve's books and gold holdings.

You?

[tdees40]

I think a dinosaur lives in the subways under Manhattan. I would be convinced otherwise only by a full audit of all subway tunnels conducted using a dinosaur scanner (which someone will need to invent).

But seriously, there are lots of things that are hard to prove wrong, but that's hardly a good reason to believe them. In your case, what motive would the Fed have? Has an employee of the Fed (or any other central bank) ever blown the whistle on this massive international conspiracy? If there's no good reason to think something, there really isn't much good reason to spend time proving it wrong.

[carsongross]

Well, the Federal Reserver produces a paper currency, the dollar, and gold has historically been a competitor of paper currencies. So it makes sense that the Fed would not want competition in currencies, and would attempt to both disparage and devalue it.

The Federal Reserve is also intimately bound up in fractionally reserved expansion of the paper currency, so it is reasonable to assume that they might use the same basic technique with gold. And that, in fact, is the historical origin of banking, in the modern, leveraged sense: gold assayers began loaning out gold on a fractionally reserved basis, allowing them to collect interest beyond their core assets. Worked great until people ran on them.

So I assert that it is less irrational to believe that there is a possibility that central banks engage in manipulation of gold prices than it is to believe that there is a dinosaur living in the subway under manhattan.

YMMV.

[tdees40]

If the Fed were lending gold on a fractional reserve basis, a huge number of people would know about it: employees of the Fed, bankers, counter-parties. Why are all of them keeping silent? Why does the Fed endear such intense (some would say insane) loyalty? How do they cover the tracks of this huge operation (both in terms of people and dollars)?

Also, to believe this you have to postulate that:

1) Employees of the Fed are personally concerned about gold destroying the dollar.

2) They are willing to do something illegal (or at least unauthorized) to protect the dollar.

3) So they came up with a complicated, elaborate plan to manipulate the price of gold down that perfectly plays into the narrative of gold bugs (note the nefarious fractional reserve lending).

It's not impossible!

[carsongross]

1) Yes.

2) People involved in the banking system, by definition, are willing to fractionally reserve something

3) Nothing particularly complicated, same fence that fractionally reserved frauds have been running for a thousand years.

_shrug_

[sopooneo]

Proving that something does exist is much more straightforward than proving it doesn't.

[DennisP]

I tend to lean toward everything being fine, but motive seems obvious. It's an extremely valuable pile of stuff being held by a custodian for many decades with no external audits. I can't think of many cases of people being okay with that situation.

[A_COMPUTER]

I am not a goldbug but I do feel like some people are breaking their backs bending over backwards coming up with reasons to preclude any sort of audit for any reason. I read the article and yeah it sounds like there are a bunch of things that a forensic auditor would wonder about. Gold has been sitting around for half a century, and when the depositor wants it, the bank delays for years and then coughs up a tenth of the gold it promised, with all the serial numbers melted off. they say it took so long because of all the paperwork but apparently can't or won't cough up paperwork about the actual reason the bars were melted down. Isn't this what serial numbers are for? Isn't this what paperwork is for? Isn't this what auditors are for?

[DennisP]

And what would make it almost the perfect crime is that if Germany thinks the gold's gone, it's arguably in their best interest to just keep quiet about it. As long as everybody think's the gold's there, Germany rolls along just fine.

[A_COMPUTER]

This is what gets me. It doesn't even need to be an ongoing conspiracy. The gold could have been spirited away during the Cold War for some critical-at-the-time purpose, with every intention to be restored, and for whatever reason it just wasn't possible. Decades later you have an institution and a government staffed entirely by people who had nothing to do with it but are left holding the bag. As you say, there is literally no incentive to expose this fact, by anybody. The gold itself hasn't left the vault since the 1960's, it can be traded on paper forever if nobody looks.

To be clear I'm not saying this is what happened, just that there doesn't have to be an ongoing conspiracy among hundreds of people and institutions for the gold to be gone and nobody wanting to say anything.

[Crito]

> "using a dinosaur scanner (which someone will need to invent)."

I'm not sure I understand you fully. What is this portion of your comment analogous to?

[nosuchthing]

I have an anti-dinosaur stone I'm willing to sell for the right price, it's very effective. Notice there are no dinosaurs around the vicinity of my stone.

[oafitupa]

And when everything fails, just pull a straw man! Right?

[ubernostrum]

It's always good to think about what you'd do if your belief was falsified. Suppose that Ron Paul himself goes through every book, every record and every nook and cranny of Fort Knox personally with an electron microscope and announces he found only evidence that the Federal Reserve is and has been above-board with respect to the United States' gold holdings.

What would you do then? Would you actually say "Well, I guess my belief was wrong and I was misled by the people who promoted it to me", or would you find a way to move the goalpost and say that you'll continue believing until some other complex and politically-hard-to-manage thing happens? And then another, and then another?

[carsongross]

I think what I would do, in that case, would be to come to the conclusion that it was not likely that the gold price was being artificially suppressed via fractional reserved lending.

So, let's get that audit going...

[nosuchthing]

People should really try and understand what makes things valuable beyond the beanie baby pokemon hype bandwaggon.

Gold as a raw material is useful to a degree, just as diamonds are, but artificial scarcity [1] [2] and wild speculation create a mess of distortions.

[1] http://www.theatlantic.com/magazine/archive/1982/02/have-you...

[2] http://archive.wired.com/wired/archive/11.09/diamond_pr.html

[orik]

At the end of the day we live in a world governed by supply and demand.

We're not going to shift to a 'usefulness' based mindset, and we should avoid shifting to the mindset that an object is equal to the sum of it's parts. Supply and Demand are king.

[AnimalMuppet]

But demand for gold is not just jewelry and electronics. Demand for it as an alternative to fiat money is inversely proportional to peoples' trust in fiat money. So gold can be unneeded as an alternative for decades, and then be needed. Gold can be completely written off as a relic, a dinosaur... and then suddenly it's not.

[_rpd]

In the case of gold, I think it is useful to look at the types of demand - jewelry and electronics consumption vs. currency hedge and speculation. In this way you can learn a lot about gold from bitcoin and vice versa.

[dragontamer]

The only conspiracy is the Gold Bug conspiracy.

The US did not have a Gold-backed dollar in practice. From 1933 onward, Executive Order 6102 was in effect, making it illegal for any individual to own more than 5 ounces of gold.

The majority of people living today have never lived in a time period where you could practically exchange dollars to gold. That's the true conspiracy. The Gold-standard arguably never even existed in the first place. (At least, from 1933 onwards)

[dataminer]

Not a gold bug myself (its a purely speculative and non productive investment instrument), however gold's price was under pressure due to Indian government restrictions on its imports. Loosening of these restrictions is one of the factors the price of gold has appreciated even in the face of US dollar appreciation this year.

[xmjee]

> So now, gold prices have been weak for a few years, so they have to come up with a new narrative. And that narrative is global conspiracy. So you get groups like GATA [1] and Zero Hedge [2] pushing various stories about how gold is being squirreled away somewhere mysterious, or prices are being suppressed by faceless multinationals or what-have-you. Maybe it's true! I don't know, but there's never really been any evidence, and it just sounds like someone justifying a failed investment thesis.

I've been following the Gold bug sphere in 2006, 2007 and there's absolutely nothing new about these conspiracy theories. They have been pushing them ever since, and you haven't even scratched at Bilderberger/Illuminati/Jews/Take your influential minority.

[NoMoreNicksLeft]

I'm not a gold bug.

Banks still hold gold, they do so while ignoring other precious substances. Maybe it is a barbarous relic.

But some of the vaults this stuff is held in... they've got much less of it than was believed. Where is it? Why is no one concerned? Why are there no plain and verifiable answers forthcoming?

[ekianjo]

> So now, gold prices have been weak for a few years, so they have to come up with a new narrative

Not sure about the narrative you describe, but it's a clear fact that it's harder and harder to buy gold anonymously, without declaring to the State where you stash it. Makes it practical the day they come to get it back and give you worthless paper instead.

[CDRdude]

If I was a government, I wouldn't even want to take it back. Storing gold seems like a hassle compared to storing the equivalent value in regular currency.

[ekianjo]

Really ? Why do governments keep tons of bar Gold then in the first place ? Have you ever seen the actual inflation of paper money over like, 50 years ? 1 Million USD used to be a lot of money back in the 60s-70s, nowadays it's a commodity and 1 billion is rather the new standard of "large sum".

[joshfraser]

Gold actually has intrinsic value. Fiat currency does not.

[stefantalpalaru]

Yes, but is gold's value for the electronics industry anywhere near its market price? The demand seems a lot smaller than the offer (they use about 320 tons/year - http://www.bullionstreet.com/news/electronics-industry-uses-... and the metal is recyclable).

[dragontamer]

Harder, or easier? It was straight up illegal to own more than 5-ounces of Gold between 1933 and 1971 in the US.

[AnimalMuppet]

Well, easier than that. But after 1971, you could go to a coin dealer, hand them cash, get gold, and I'm pretty sure they didn't report your name to the authorities.

[ArkyBeagle]

Or gold was in a bubble that collapsed.

The Depression proves that the gold standard doesn't work. There was no stability; there was deflation.

Since the concept behind the gold standard means "gold always..." - a universal quantifier, one needs only show a counterexample to blow it out of the water.

[WalterBright]

> The Depression proves that the gold standard doesn't work.

Not really. The government went off the gold standard in 1914 when it began printing whatever dollars it needed. A legally fixed exchange rate, however, continued. This led to an increasing disconnect between the dollar and gold, by 1929 gold was worth about twice as many dollars as the legal exchange rate.

This is what lead to the banking collapse, as everyone suddenly realized this and rushed to exchange their dollars for gold at the official exchange rate. The runs persisted until the government suspended exchanging gold for dollars.

We see the same thing happen in modern times every time a government decides to peg its currency to a foreign currency, and then inflate it.

[ArkyBeagle]

But that's not what happened.

http://www.nber.org/papers/w16350

The hypothesis is that France "hoarded gold" - kept more gold reserves than it printed currency. This led to a paucity of gold. Those nations that played by the rules could issue less currency than was needed. This led to deflation.

[WalterBright]

More generally, any time two unrelated commodities' values are pegged to each other, there will inevitably be a correction, usually wrenching.

Bimetalism, the attempt to peg the value of silver in relation to gold, has quite an illuminating history of failure.

[throwaway90446]

Agreed that deflation is terrible. I hate paying lower prices for goods and services. Thankfully we have central banks to fight the scourge of lower prices.

[throwaway344]

I, on the other hand, love lower wages, higher real debts, and problems with planning.

[ArkyBeagle]

Deflation is terrible. We can largely blame deflation for WWII.

[oafitupa]

And we all know that "mainstream economists" are a good source for unbiased opinions.

[tdees40]

Sure. Just like "mainstream climate scientists", or "mainstream doctors", amirite?

[LanceH]

It's a lot easier to find diametrically opposed economists. Not quite as easy as lawyers, but close.

[sheetjs]

https://en.wikipedia.org/wiki/List_of_scientists_opposing_th...

[oafitupa]

You didn't just compare macroeconomics to actual sciences, did you?

[Htsthbjig]

"and despite the fact that mainstream economists, politicians, bankers, etc. still thought of it as a "barbarous relic" (Keynes), gold-bugs saw it as the key to a prosperous economy."

You mean the same bankers, economist and politicians of the bail out to big banking institutions?

You mean the same bankers, economist and politicians of the too big to fail?

the same bankers, economist and politicians that have brutally increased their wealth in the crisis while the people income has gone deep down?

You need to insult people that disagree with you, calling them "bugs".

[forgotX2]

This is like saying that all computer programmers are responsible for enriching themselves for hacking target and home depot. It is crazy that you are so easily dismissing an entire academic discipline.