Is Gold Really Worth Anything?
Mark Cuban is full of a lot of things. Lots of great ideas, lots of money, lots of love for NBA officials. Just lots of “stuff”. A veritable box of inspiration, really. The other day, he wrote a post about something I’ve thought about for quite some time: the present day value of gold.
Hundreds of years ago, gold was treated as a global currency because it was relatively rare and it helped produce items which indicated social status (viz. jewelry). If your family had a lot of gold, it was considered rich. If your country had a lot of gold, it was considered rich. Eventually, when everyone moved to paper currency, the idea was that each unit of paper was “backed” by one unit of gold in the treasury. The concept being that if the entire global economic system were to break down, we’d still have the gold to trade with.
This concept, however, is almost completely obsolete in today’s society. In the case of a global economic meltdown, who is going to care about collecting bars of gold? These days, it’s things like oil, enriched uranium, and natural gas that become the real currency of survival in such dire times.
Cuban takes things a step further though and brings up something I hadn’t thought about: given that gold has little substantive value anymore (it’s not even close to the most precious element), why not take our entire supply and sell it off at $420 per troy ounce while it’s still worth something? Maybe pay down the national debt a little?
It’s been many years since I took my last macroeconomics class so I’m sure Cuban is probably missing something here that would throw the world into a tailspin, but it really doesn’t seem like a terrible idea to me… in theory at least. The toughest part about it, and possibly the deal-killer, seems like the process of unloading it. The U.S. obviously couldn’t just announce one day that all of their gold was for sale. Perhaps in steady chunks over a long period of time though, it might work.
Anyway, I’m way out of my “element” here… just wanted to mention this interesting idea.
That’s a creative idea, but you’re certainly right about the selling it off all of a sudden.
It could theoretically work if instead they traded it for something more precious, perhaps?
I can’t wait to see people going to the grocery store with there barrels of oil. It will be quite a sight for my eyes if it ever comes to what Cuban claims it should be (unless science ends up advancing to the point were it can make gold). He should know that the market is plenty efficient.
(Note – I like your pretentious use of viz.)
The original NYT article is worth a read if you’re interested in such things:
http://dailyreckoning.com/Featured/NY.html
Andrew: Hey! I got turned on to “viz” from Trent Davies in this comment. It’s quite useful actually as it successfully takes the place of either “i.e.” or “e.g.”. In the case that I used it in above, it really could have been either “i.e.” or “e.g.” so why not hook our friend “viz” up instead? :)
Also, I agree that people won’t be walking into groceries stores with oil, but I just don’t think they’ll be doing that with gold either.
Going back to using gold as currency would definitely make people’s bags heavier.
One thing is for sure, the rapping community would be in an uproar.
Careful, your computer might run much slower without gold in it!
http://www.4pcb.com/circuit_image_design_tips_gold_applications_on_pcbs.htm It is one of the best conductive elements known to man and one of the least reactive elements so that it is stable. It has many practical applications as well in dentristry and aerospace. I agree that stock pileing it may be silly, but you certainly don’t want it to become rare. I guess the question would be if we loosened up the supply would it in fact become inexpensive and available, or would it somehow be bought by someone who made it more rare.
You may be too young to remember when the Silver market was nearly cornered by the Hunt Brothers:
In 1970 the price of silver was at $1.50/oz. The Hunt brothers, Bunker and Herbert, of Texas oil fame, were both acutely aware of the wholesale theft of the Nation’s silver stockpile that had been taking place through the actions of the SUA. (For an in-depth examination of the Hunt brother’s attempt to corner the world silver market, see H.L. Hunt’s Boys and the Circle K Cowboys by Larry LaBorde.) When Nixon removed the dollar from the last vestiges of the gold standard in 1971, the brothers also realized that the New York Eastern banking establishment, led by the Rockefellers, was now free to work its diabolical monetary magic. Through the insidious contrivance called inflation, they could effectively transfer a portion of the Hunt’s oil fortune into their coffers. The brothers started buying silver.
http://www.financialsense.com/editorials/silverbear/2004/1123.html
Maybe Cuban is trying to position himself for the greatest heist in history?
Mmmm, any X Files fans out there?
Gold is important cuz aliens want it.
http://xfacts.com/sumerian_culture.html
When the world blows up ten times over because of a nuclear war or what not, no one’s going to care about collecting gold. It’s all about the food. We need food to survive.
If one were to own all the blue cheese and canned peaches in the world, during times of a global catastrophe, you’d be the wealthiest person alive. (Assuming that everybody likes blue cheese)(and canned peaches)
Aurei sacra fames…
In ancient Egypt, silver was rare and considered far more precious than gold. And a couple of centuries ago, Spanish counterfeiters used South American platinum (which has slightly higher density than gold) to make counterfeit gold coins, that are now much more valuable than the originals. But if you think gold is overpriced, have a look at diamonds…
As an economist, maybe I can offer an opinion on the subject: there is no such thing as “the value” of gold in terms o trade. If gold has some uses for you (other than trade) than those determine its value to you… that also determines how much you’re going to trade for it (in money or barter)
All these invididual demands and supplies of gold meet, and the market splits by karats, etc. and what you get is people trading their favorite kind of gold at pretty much a market-emergent price. There is no “one true value” of gold, or some objective standard. Its price is the result of the interaction of supply and demand. It’s value? Well, that’s up to you to decide, what you want to do with it.
And this brings me to my next point… historically, people used barter, but they find it very cumbersome to carry around their cart of mellons to find people to exachange mellons for spears, or whatever you needed. Money emerged, via a long but rather simple process: all goods can be exchanged for money at market prices and with this money you can get what you want… it takes barter and splits it into 2 different operations.
Current day money is a State monopoly. The State is the only institution on its territory that can legally print currency. The State uses this monopoly to expand the money supply therefore creating inflation with which to finance its deficit. It’s a pretty awful business!
If the State would allow people to use whatever they deemed fit for currency (if the Legal Tender Law would be rejected) they’d be able to print their own currency (not US Dollars but with a name of their choosing, to be clear)
Many distinguished economists claim that over time, people would gravitate towards currencies represented by scarce resources, such as gold, since the supply of gold is practically constant, you don’t get inflation and the continual deterioration of the worth of the money in your pocket, as you do with the curernt Stating monopoly.
In any case, Gold, the Gold Standard, has been proposed as a solution to the issue of inflation: it is portable, it is rare, it makes good money (you can keep it in a bank and still use checks, as long as these checkes are backed by gold)
Re: the sale… if supply increases then prices drop. The same argument can be made about Bill Gates. If he were to put up for sale all his Microsoft stock, by the end of the trading day Microsoft’s stock would be ruined. B. Gates is the richest man alive but unable to do anything with pretty much most of that wealth.
If the gold’s scarcity, portability, international use, and so on don’t interest you, and you think it’s something you want to get rid off, you’d better find a way to sell it all off in one go, at a high enough price, or “leak” it onto the market in small quantities at a time.
Gold reserves allow States to stash a lot of worth in a relatively small space, and a cheap and painless manner (to be contrasted with the industrial requirements of the storage of oil or natural gas!)
Yeah! Gabriel just said exactly what I meant by sayin’ “the market is efficient” enough. Some times I forget that not everyone understands economics.
What would be interesting would be to examine the value of our gold reserve in terms of what it has cost us to protect it. Anyone care to do research?
Gabriel, that’s a great econ101. Value is totally subjective. Gold holds very little value for me, other than as you say it is an inflation-proof investment. It’s value to me is that I can sell it to others that see value in it. To me it’s just metal that represents cash.
According to your theory, if we use oil or natural gas instead of gold as a global currency. Maybe some Arab countries rather than U.S would became the richest countries in this world. Am I right?
I must agree, in theory. As fickle as the market is, I would think it would do something stupid if the US started to sell gold in any non-normal capacity…
Don and Gabriel: Great insight there. Thanks for posting.
Also, with regards to diamonds, up until now you could at least make the argument that since they are the hardest element known to man, they are worth something in terms of cutting tools. However, now that we can make them synthetically (not to mention, we can cut with lasers now too), their real worth beyond the jewelry aspect has dropped.
What a bizarre coincidence…
Utah Man Finds $100M in gold bullion in a cave
I’ve nothing to say about gold, but I don’t think you could replace viz. with i.e. above. That would be limiting the items which indicated social status to jewelry alone.
I.e. (or id est) can be translated as that is, whereas e.g. (exempli gratia) can be translated as for example.
Viz although not entirely incorrect in this usage, is typically used in a fashion more closely approximating i.e. than e.g.
Michael: Interesting. I might agree with you, but I’m not sure. This was the sentence —
“Hundreds of years ago, gold was treated as a global currency because it was relatively rare and it helped produce items which indicated social status (viz. jewelry).”
By “items which indicated social status” I really did mean “jewelry” and pretty much “jewelry alone” (even though gold was probably used for a few other things as well, like masks).
So, if I meant “jewelry alone”, wouldn’t “i.e.” also be correct? The translation would be “that is to say, jewelry”… which seems right.
Michael: “Although not entirely incorrect…”
How dare you question viz’s (vizzes?) pre-eminence!
According to the Wikipedia article on this patron saint of latin abbreviations, Viz is commonly used to introduce lists or series. So Its usage in Mike’s sentence is entirely correct and appropriate, as he is expanding a list of items for which gold indicated social status.
I’ll tell you what. If the US were to even merely adopt a plan to sell off all their gold – without even announcing it, in fact even if they began as inconspicuously as possible – prices would drop spectacularly. It wouldn’t take long for people to see what was happening. Speculation would drive down prices even more effectively than a formal announcement. — JD
There is no single global currency, so there can be no “switch” from gold to oil. And Arab countries are already among the richest in the world. —JD
As mentioned above, gold has special physical properties that have singled it out as a popular standard for trade over the milleniums, (think rareity, molecular stability, resistance to corrosion, maliability, etc.).
Has anyone noticed that in Wired magazine “think” has replaced “i.e.”, “e.g”, and “vis.”? Clever way to bypass the whole Gordian Knot of the situation, eh?
Mike: Of course, I hadn’t considered that you were limiting yourself solely to jewelry; although thinking about it, there really wasn’t much else was there?
Trent: I would never question the eminence of viz! Da vizza’s da shizaa! It’s just that (IMO) viz has more a connotation of a defining list, than of an open-ended suggestion. Of course, it seems I woefully misinterpreted Mike’s intention anyway, and he wanted a defining list, rather than suggesting that jewelry was one of many things.
Indeed gold is less used than on previous occasions.. But when was gold acctually used as a commodity? It has always been used as a currency for buying other items with. As everyone had the same currency gold.. prices could be easily distinguished between. If we start backing our currency with oil or something similar as suggested. The oil will no longer be a currency but a product. How can we possibly trade products? I’ll sell you 1/2 litre of oil for a packet of fags? Not really an option i can see working.
I understand what you mean but i still don’t understand why you ever thought gold was used a commodity? Apart from as jewllary to show off someones wealth. This is another dilema if we replace gold with oil. How can we possibly show off were rich? Where oil?? Not really going t work..
I think the result of a country selling off all their gold would be a dramatic drop in the value of their currency (or a failure to recognize it at all)
It’d be the same thing as the government of that country suddenly deciding that 1 block of gold is worth 10 times as much – to the rest of the world that currency would suddenly be worth 10 times less.
You can turn the question around though … who wants your silly little American greenbacks and what are they worth? If I’m in Saudi Arabia with millions of barrels of oil, why would I sell those to you for American dollars that become worth less every day? What is an American dollar going to get me? Unless you really want to put a faded green portrait of George Washington on your wall ….
Pay me in Gold baby! It’s been worth something throughout history no matter what empire claimed to be the current reigning superpower and it will still be worth something for a long time to come!!
Only ONE thing you’re forgetting… for all practical purposes, our government doesn’t have ANY GOLD! When the U.S. mint wants to issue gold coins, they have to go to the open market to purchase what gold they need! If they did have any reserves, they would use those….!!!
and just a thought on oil…. 18 months ago, the U.S. government began purchasing a “secret” amount of oil that they aded to the ” military reserves” under the “threat” of war. Duriing the last 6 months, they sold that oil (secretly) back into the system to LOWER the price. So, now they will be adding back “secret” amounts of oil to the military stockpile to replace what they sold… anyone for $3 gasoline by 1/1/07?
Gold is valued in the eye of the beholder, and he’s right about gold’s worth being essentially dead weight if the economy truely crashes. If it all hits the fan your ounce of gold at least INITIALLY will be practically worthless. This is especially true in American style fiat based economic systems that have all but forgotten what money even is.
Money is: A unit of tangible physical material that represents stored WORK that can be devided AND stored indefinately and still retain it’s intrinsic value per unit of measure. Not much fits that definition, but gold and other precious metals do. They are functioning money mainly because each unit of measure represents a large amount of work. It takes about a month of work to process an ounce of gold, and over 6 months of work to get an ounce of platinum.
The majority of the people in FIAT economies are dependent on the fiat currancy infrastructure for survival. When this infrastructure collapses, it will be back to barter, a hot meal for a days work, swapping a bottle of iodine for a gallon of gas, or a box of 22’s for a chainswaw- that sort of thing. After a few months of this people find it’s hard to barter everyday for everything and will begin to use rare durable objects such jewelery or precious metals as a means to store wealth. Then before you know it we’ll be back to the shiny yellow metal and real money once more.
Even today, in countries like India, all that silver jewelery those ladies wear isn’t just for gaudy looks. At the market, it’s just as acceptable to pay for your spices using a small silver bangel as it is to pay in paper rupiee notes!
Well i think that we can’t sell it off as it is forbidden,I think we are miners of gold for an extraterestial reasons. Like has been mentioned, gold is stable and has many properties that make it extremley valuble in electronics and industrial sense. A large scale need would be in the use of powering very large spacecraft. If the spacecraft already exsist and needed resources what better way than to populate planets with beings capable of acomplishing such tasks to a very effective degree, Then at some future point just come in a collect. With the abilitieto place persons of their chosing into positions of power to ensure that these procedures are carried out (goverments). This may seem far fetched but no more far fetched than the reason humans are here in the first place. Just a thought
Please Let Us Be Enlightened
You are all dumb!
The US is not rich, it has 53 trillion in value and 60 trillion in debt. We would walk away owing.
China has no debt adn 1.4 trillion in the bank.
Gold is up in dollars only and will keep going up in dollar terms. If you traded gold for a home 25 years ago, it takes the same amount of gold today to get the same home today but not in dollars.
Inflation is only in dollars and inflation is not the right term. Delusion is the right term to use.
You can see it this way:
The US is the company and the dollar is the stock of the company. When the company (the US Government) prints more shares (dollars), what happens to your shares? They go down in value by that much. The Gov can not print more gold so gold goes up in relation to the delusion of the dollar. If we went back on the gold standard right now it would take $44,000.00 per oz of gold to do it. M3 devided by total gold held by the US in 1985. I say 1985 becasue that is when the last audit took place on any gold we had. I say had because many do not thing we have any at all.
Värden och valutor
Häromdagen gick jag och funderade på valutor och värden. I helgen fick jag se World of Warcraft spelas för första…
The US Dollar isn’t backed by gold, silver, oil or anything like that. It’s backed by aircraft carriers and ICBM’s.
Dan W is right…
And John, actually the US dollar is backed by OIL in a sense. I read that all oil is traded using the petro dollar, which is inturn a US dollar. So all this middle east (and russian) companies get paid in the US dollar and then store that money in US banks – which in turn gives the US banks the ability to offer more credit to its clients.
Now the big problem/reason for a gold boost is b/c these countries want OIL to be traded with the Euro, not the dollar. What will happen then is we wont have as many peolpe using our currency or as much cash available to our banks, and lending will not be as easy. When less people use our dollar then its value will go down and golds value will stay constant pretty much to the Euro, but since the US dollar drops in value to the world, the value of GOLD will be worth a lot of US dollars.
I’m quickly summarizing a few things I’ve read or heard so let me know if your thoughts. Good read to search “Dollar collapse” on youtube or google…
Here goe’s
As the markets plunders around the Globe and the stank of the wealthy and corporate greed runs amuck. Gold and Silver will not be worth anything to any one in the near future, nor will be traded anymore.
There will be point of self proclaimed persons of statue and recognized who meet each year in America and the other countries abroad. Will order to bring the markets around the World to a suitable stable economy, there will be a need to have a one currency system with out exchange rates and to make Gold, Silver, Stock certificates and etc illegal to trade with any thing, like commodities and other stuff.
You will see the day, if some of us live this long to see people try to feed, themselves and their families with a bar of Gold and be told to go away from farmers and etc, stores and stuff. It will be illegal and severely punishable crime, right up there with meth and other hard drugs.
1st: A proclamation, gold starts to bottom out, the wealthiest in the world will sell out fast as ordered. Another part of the economic chaos brought to us.
“Remember panic, fear threats and stuff to stock markets gets a lot of people motivated to put money from their accounts to precious metals, Gold and Silver mostly. This is what drive the price up!”
2nd: People will panic and governments around the World will take action.
3rd: “Planed” Emergency Summit meetings begin for WTO and WBank with assortment of governments invited.
4th: After a number of meetings and governments aboard, there will be an announcement to everyone in the World to bring all their Gold, Silver and etc to stations points around the World. There will be a massive buy out of Gold and etc to be electronically credited for a small price to the current value to each government allows.
5th: Time later, debit dollar will be introduced and used around the World. Based on supply and demand, exchange rates will be abolished.
The last poster – besides being slightly illiterate – is a flake. People will not give up gold and silver. Gold and silver will not disappear as money as it have been in use since before modern recorded history (nor will the world’s oldest profession disappear either for that matter een though it is illegal).
My best sense is that anything becomes a currency if enough people believe in it and trade in it. Examples inlude tulip bulbs, cowry seashells and a host of toher useless items including giant stone wheels. Look, there are people who do not believe in the value of a us paper dollar but who do believe in an ounce of gold and that it has more value. Governments acquire gold these days. So – what the most recent poster said will never come to pass but I do believe we will see gold rise again – maybe to unprecedented leverls and in doing so I expect silver will get dragged along for the ride as it is a precious metal and therefore money as much as gold is – just worth less.
Gold will always be worth something! Maybe not to the poor but the rich will always trade goods or whatever type of currancy there is at the time for it! The rich are drawn to gold like fish to worms and there greed is the reason they will never get off that hook that has minipulated man into killing his brothers and into killing his home(earth). In 1971 nixon took our nation off of the gold standard(befor there was equal amount of paper cash as we had gold) and allowed the u.s federal reserve bank to start printing as much money as they wanted which in turn cuased the paper u.s. dollars to lose its perchasing power.The sad thing is that the us federal reserve bank is not a untited states entity or a federal agency or a reserve or a bank. Its nothing more than a wealthy group of private investors. And the scary part is instead of only printing unlimited money for the untited states its been printing unlimited money for the entire world.So- if history repeats itself like it did for the romans, greeks, germans, japanese, chines, and all the other nations that have decided to print money unlimitly… God have mercy on the wealthy top 2%. O and i almost forgot in 2009 the us federal reserve bank printed more money than what was printed between the begining of the united staes printing money and 2008 ALL PUT TOGETHER!:(