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Gold Crash
April 18, 2013 7:21 AM   Subscribe

"Gold's crash this weekend is, as Oprah might say, a teachable moment. Crashes like this are a good way to find out how markets work. It's like a game of financial Clue, a way to keep sharp your skills of deduction. You don't have to be a stock investor or a math whiz to figure it out, either – you just have to have a good grasp of news and human psychology." - the Guardian on this week's crash in gold commodity prices.
posted by Slap*Happy (85 comments total) 16 users marked this as a favorite

 
Glenn Beck has some thoughts - or "thoughts" - on this.
posted by RandlePatrickMcMurphy at 7:30 AM on April 18, 2013 [1 favorite]


This is unfortunate for all the people who believed the hype and bought at the top, but this is good news for the electronics industry, which has an actual need for the stuff.

Also: I doubt that we're at the bottom.
posted by jcreigh at 7:30 AM on April 18, 2013 [2 favorites]


On the other side of the spectrum of tangibility of money, Bitcoin crashed too.
From one blogger's comparison:
In this respect, gold and bitcoins have both the same core virtue and
the same core flaw. Both represent an alternative to government-managed
fiat currencies. Both are hard, if not impossible, to assign intrinsic
value to.

posted by snuffleupagus at 7:31 AM on April 18, 2013 [3 favorites]


Is a loss of 15% from 30 days ago, while still being up 50% from 5 years ago and wildly over-priced, really a "crash"?
posted by DU at 7:32 AM on April 18, 2013 [13 favorites]


When you have to fill 24 hours of airtime, everything is breathlessly reported and only the strongest adjectives, war and sport analogies are allowed to survive.
posted by DigDoug at 7:34 AM on April 18, 2013 [7 favorites]


Yeah, I'm not sure this is really a crash so much as people really hope it is, and for good reason. Stashing your money is gold is really economically inefficient and societally a terrible way to suck money out of the economy (Felix Salmon explains why) not to mention that some people actually need gold for real ends, like the aforementioned electronics industry.
posted by selfnoise at 7:37 AM on April 18, 2013 [1 favorite]


On the other side of the spectrum of tangibility of money, Bitcoin crashed too.

Sorry same side of the same coin.

A gold one natch.
posted by JPD at 7:38 AM on April 18, 2013 [1 favorite]


This article is full of interesting analogies and pull quotes .. While I don't have enough background to vet or repudiate many of them, I can still enjoy the lolz produced.
[like the sports fan in the basement] The market is not capable of introspection. It is only capable of action: up, down or sideways. It doesn't go inward.
posted by k5.user at 7:40 AM on April 18, 2013 [3 favorites]


15% is a correction, not a crash.
posted by unSane at 7:42 AM on April 18, 2013 [1 favorite]


This particular market, because you can't value something that doesn't generate something that is useful, is sort of the high of speculation, and therefore filled with "lolz" such as those.

There is the famous Buffett quote about gold that is something like you could buy a all of the gold in the world and end up with a metal cube the size of a room that just sits in a room or you could buy the largest oil company in the world + all of the farmland in the US - both of which will generate oil and crops you can sell.
posted by JPD at 7:43 AM on April 18, 2013 [1 favorite]


Is a loss of 15% from 30 days ago, while still being up 50% from 5 years ago and wildly over-priced, really a "crash"?

If you believe that gold is a Magical Value Holding Fairy Brick, then this sort of thing can be jarring. But I'm sure all the goldbugs will curse the central banks for causing this somehow and move on with their lives.

And yeah, I agree, this isn't much, hence my comment that we're not at the bottom. And the recent Bitcoin "crash" has left Bitcoin back at where it was at the beginning of this month, which I believe was a record high at the time. What is wrong with us that even our crashes are over-hyped?
posted by jcreigh at 7:44 AM on April 18, 2013


...and wildly over-priced, really a "crash"?

Dude, you just don't get it, this is post-millennium times, markets are just supposed to go up, always, or at least keep bubbling up and up until I get out early!
posted by sammyo at 7:47 AM on April 18, 2013 [1 favorite]


Long gold is short civilization.
posted by Damienmce at 7:48 AM on April 18, 2013 [6 favorites]


If you believe that gold is a Magical Value Holding Fairy Brick

This belief still confuses me. This can be empirically tested, right? It's not like there's no historical data to go on. What does the data say? I had always thought that history has shown (blah blah future events not predicted by past events etc) that the stock market has always outstripped any other investment vehicle. Granted, I am not speaking from a position of expertise, but does anyone else have any clue?
posted by backseatpilot at 7:49 AM on April 18, 2013 [1 favorite]


What really is gold? A shiny metal with some ornamental and marginal industrial use? Other than for bling what good is it? You don't see Glenn Beck hawking zinc or magnesium.

It's like they're living in RPG world. Maybe they're hording all these gold pieces so they can go get themselves a Phoenix Down if they're feeling low.
posted by JHarris at 7:50 AM on April 18, 2013 [6 favorites]


Actually it's too bad there isn't a bit more of it, it would make really good wire, much better than copper.
posted by sammyo at 7:50 AM on April 18, 2013 [3 favorites]


One possibility is that part of the demand for gold was driven by goldbugs. The emergence of a substitute product, e.g. Bitcoin has shifted demand. Commodity markets are notorious for volitility in the wake of over or under supply.
posted by humanfont at 7:50 AM on April 18, 2013 [1 favorite]


It's not like there's no historical data to go on. What does the data say? I had always thought that history has shown (blah blah future events not predicted by past events etc) that the stock market has always outstripped any other investment vehicle. Granted, I am not speaking from a position of expertise, but does anyone else have any clue?

We really only have stock market data going back about 150 years, but yes during that time period Equities outperform other financial assets including gold. They sort of have to as they are also the most volatile and hold the greatest risk of large losses.

Gold/Commodities (Hard and Soft) sort of don't sit in that paradigm though. Commodities are negative real returns on a reasonable time frame - mostly because the costs of mining and especially refining have decreased in real terms over time.

There is an argument that there is no such thing as investing in Commods
posted by JPD at 7:52 AM on April 18, 2013 [1 favorite]


Sorry same side of the same coin.

No, what's interesting (or at least what I was suggesting is interesting) is that gold is undeniably tangible (which is part of its allure for many investors, although perhaps not the smartest ones) and bitcoin is undeniably virtual, but their valuation problems are similar (despite the supply of gold being ultimately finite, and the supply of bitcoins being ultimately infinite.)
posted by snuffleupagus at 7:53 AM on April 18, 2013 [1 favorite]


gold the metal is tangible, but gold the asset is completely disconnected from anything tangible, just as bitcoins value is.
posted by JPD at 7:54 AM on April 18, 2013 [2 favorites]


Quite right. I'm not disputing that. But the tangibility of gold the metal is what drives a lot of the faith in gold the asset. Despite the disconnect.
posted by snuffleupagus at 7:56 AM on April 18, 2013


That only makes it dumber I guess.
posted by JPD at 7:57 AM on April 18, 2013


Indeed!
huh. direct links to a specific time don't work in the embedded player.
posted by snuffleupagus at 7:58 AM on April 18, 2013


same side of the same coin.

A gold-plated Dunning-Krugerrand, to be precise.
posted by Zonker at 8:01 AM on April 18, 2013 [10 favorites]


But the tangibility of gold the metal is what drives a lot of the faith in gold the asset.

Which is completely insane. Copying what I posted in the BitCoin thread a few weeks ago:

The fact that if gold suddenly lost 99% of its value, you would still have the 1%, is like saying that Zimbabwe dollars still have value because they can be used as scratch paper. It would be relatively easy for transaction fees to wipe out the percentage of value that you would have left if all of the value from it being a scarce currency was lost.

Today a single ounce of gold is worth over $1500 $1300, due almost entirely to speculation. If you want to have some very small pieces of highly useful but mostly worthless metal after BitCoin loses all of its value as a currency, then buy $1480 $1280 worth of BitCoin, and spend $20 on ebay buying a set of 1oz bullion bars of copper, brass, zinc, iron, and aluminum. That's over 5 times as much (diversified!) shiny metal for the same investment, and you've successfully hedged against the chance that you might not have a few ounces of metal at some point in the future.
posted by burnmp3s at 8:03 AM on April 18, 2013 [7 favorites]


Maybe I'll get a cheap Radeon out of all of this, though. Ever wonder if Satoshi Whateverhisnameis works at ATI/AMD?
posted by snuffleupagus at 8:07 AM on April 18, 2013


That's an awful lot of words just to say that two theories for the gold decline are kind of crazy and one is not ruled out.
posted by kiltedtaco at 8:14 AM on April 18, 2013 [1 favorite]


Somewhat related (economics of gold vs natural resources): Don't Believe the Hype—House Tyrell Is Richer Than House Lannister
posted by zombieflanders at 8:15 AM on April 18, 2013 [2 favorites]


Maybe someone can correct me if I'm wrong here (which is likely), but....

BitCoin. It's not a perfect analogue for gold really. It's worse, is it not, because while gold is a physical entity BitCoin requires infrastructure to maintain. Transactions are tracked, BitCoin miners have to communicate with a central authority so they can receive their payouts in the mining lottery, and they can only be stored in a BitCoin "wallet" to handle transactions, ensure there's no duplicates, and try to enforce some kind of scarcity, right?

That's a non-zero maintenance cost for the currency. It might be very low overall, but you still pay something over time just keeping BitCoins. And as solutions to a specific mathematical formula without real purpose they're objectively worthless. At least gold has ornamental and industrial use.

So then... why? Why BitCoin? I guess it serves as a relatively untrackable store of value, except it's not really valuable. It's kind of rare and that's it. You can't even show it to friends and say 'that's only one of 3,790 ever made" because it's wholly ethereal. Who in their right mind would care?
posted by JHarris at 8:19 AM on April 18, 2013


The World Gold Council is reportedly worried the electronics industry might switch from gold to copper if prices keep inflating (because, you know, they really don't even need gold specifically for use in electronics; other materials can also do the job).

If that happens, there'll be real problems for all the Gold Bugs. So it's probably for the best the prices are correcting, if you have an interest in maintaining the long-term value of gold.
posted by saulgoodman at 8:24 AM on April 18, 2013 [1 favorite]


Bitcoin doesn't have a central authority who pays you or tracks anything. The entire thing is peer2peer. It is difficult to explain and understand. Maybe pla will show up and explain it all. The math behind it all works but it gives me a headache.
posted by humanfont at 8:30 AM on April 18, 2013 [1 favorite]


Oddly, I do not in fact have an interest in maintaining the long-term value of gold.
posted by Justinian at 8:31 AM on April 18, 2013 [4 favorites]


while gold is a physical entity BitCoin requires infrastructure to maintain

No infrastructure is required to stop other people from stealing your gold?
posted by one more dead town's last parade at 8:36 AM on April 18, 2013 [4 favorites]


Surely we've all seen Goldfinger.
posted by JPD at 8:46 AM on April 18, 2013


So then... why? Why BitCoin? I guess it serves as a relatively untrackable store of value, except it's not really valuable. It's kind of rare and that's it. You can't even show it to friends and say 'that's only one of 3,790 ever made" because it's wholly ethereal. Who in their right mind would care?

Nation states whose trade is heavily influenced by currency values, probably. I don't really understand the math behind it but the merit of being decentralized is that, at least for now, the price and value of Bitcoins is pegged somewhat on its security and mostly on whatever value Bitcoin users give to it, not on complicated and inefficient agreements between large governing bodies.

At this point, sure, I don't know if Bitcoin is the future. The problem with Bitcoins, then, is that it seems to be pegged on computational power, something that stratifies based on infrastructure and education and could easily be manipulated by corporations or governments if they wanted to invest in it in the first place (which they don't since they have so much financial and political leverage and power over emerging markets). But its niche success is paving the road where somewhere a long ways from here we're going to have a globalized, unified currency that can't be so easily manipulated. I don't think that's necessarily a bad thing especially for emerging markets. I also don't think Bitcoins (TM) specifically will be here in the future though elements of it, like the security aspect, would probably be retained for the future.
posted by dubusadus at 8:46 AM on April 18, 2013


Surely we've all seen Goldfinger.

It's probably about time for bitcoins to become a major plot point in a movie, since they seem to be more in public awareness... A bond movie that revolves around a major bitcoin heist wouldn't be TOO much of a stretch for the franchise.

If nothing else, the plot synopsis would be an entertaining read.
posted by MysticMCJ at 8:52 AM on April 18, 2013


At first glance I read this as "Gods crash" but I think that would change the conversation a bit.
posted by boilermonster at 8:54 AM on April 18, 2013


Yeah but a woman covered in silicon wafers lacks the je ne sais quoi of gold.
posted by JPD at 8:54 AM on April 18, 2013 [4 favorites]


That's an awful lot of words just to say that two theories for the gold decline are kind of crazy and one is not ruled out.

From a related comment in another thread: "Any journalist who writes, 'The market moved because of X' or 'the company went bankrupt because of Y' is an idiot. I am fed up with this cheap way of 'explaining' the world."
posted by mrgrimm at 8:59 AM on April 18, 2013 [2 favorites]


Surely we've all seen Goldfinger.

It's back on Netflix Instant! And actually, we were just watching that recently, and I said I thought that movie perfectly explains why the gold standard is kinda silly, if Goldfinger could screw up the entire world (US?) economy just by damaging a bunch of hoarded unrelated stuff.
posted by epersonae at 9:12 AM on April 18, 2013


Warren Buffett wrote the most interesting thing I've ever read about gold in an otherwise uneventful letter to shareholders which helps explain how, IMHO, reasonable people view gold:
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.
[ On preview this is the quote JPD is talking about ]
posted by braksandwich at 9:16 AM on April 18, 2013 [27 favorites]


sammyo: "Actually it's too bad there isn't a bit more of it, it would make really good wire, much better than copper."

As I understand it, copper is actually a better conductor than gold. Where gold outperforms copper is oxidation. So the optimal wire is copper with a thin layer of gold leads / contacts.
posted by pwnguin at 9:20 AM on April 18, 2013 [2 favorites]


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

Is Warren Buffet the new Frank Zappa, and is this a line from his response to Call Any Vegetable?
posted by foonly at 9:25 AM on April 18, 2013 [3 favorites]


It's probably about time for bitcoins to become a major plot point in a movie, since they seem to be more in public awareness... A bond movie that revolves around a major bitcoin heist wouldn't be TOO much of a stretch for the franchise.

If nothing else, the plot synopsis would be an entertaining read.


EXT. A roof-top of a high-tech facility! BOND is crouched over skylight, he and Q are chatting via blue-tooth earpiece that glows blue - Night

BOND taps his iPhpone three times, frowns, and then taps it twice more.

BOND: THAT'S IT, Q! I'M INTO THEIR MAINFRAME. HAVE THE HELICOPTER READY TO LOAD THE THUMBDRIVES!

Q: CAREFUL, 007, THEY'LL BE QUITE A BIT HEAVIER NOW THAT THEY'RE FULL OF BITCOINS.
posted by Slap*Happy at 9:35 AM on April 18, 2013 [11 favorites]


...the supply of gold being ultimately finite, and the supply of bitcoins being ultimately infinite.

There are ultimately a finite number of bitcoins. The system is set up so that as the rate of computation grows, the difficulty of creating new bitcoins grows along with it.

In that sense it's designed to be sort of like gold mining, except with video cards as sieves.
posted by helicomatic at 9:44 AM on April 18, 2013


I think Heidi Moore is responsible for at least half the traffic on Twitter.
posted by hwestiii at 9:51 AM on April 18, 2013


If you don't want to play the game, you could always keep your savings in cash. It's not like banks and governments collude to simply remove cash savings out of people's retail accounts to pay off uninsured losses of large financial players.
posted by pleurodirous at 9:57 AM on April 18, 2013 [1 favorite]


Looks like the creepy twins from The Social Network are going long on Bitcoins.
posted by Blazecock Pileon at 10:01 AM on April 18, 2013


If you don't want to play the game, you could always keep your savings in cash.

That works great in an inflationary environment.
posted by unSane at 10:03 AM on April 18, 2013 [1 favorite]


Oddly, I do not in fact have an interest in maintaining the long-term value of gold.

Me neither, Justinian. Me neither. I'm mistrustful of all magical beliefs systems.
posted by saulgoodman at 10:20 AM on April 18, 2013


Anyone mention that it is relatively speaking a very thinly traded market, and therefore given to swings?
posted by IndigoJones at 10:30 AM on April 18, 2013


one more dead town's last parade: while gold is a physical entity BitCoin requires infrastructure to maintain

No infrastructure is required to stop other people from stealing your gold?
Just a shovel.

Untold amounts of Viking silver are still buried in hoards across Gotland, where metal detectors are forbidden by law...
posted by IAmBroom at 10:31 AM on April 18, 2013


this is post-millennium times, markets are just supposed to go up, always
posted by CynicalKnight at 10:54 AM on April 18, 2013 [1 favorite]


Planet Money talks to a chemist about whether there's something intrinsic about gold that makes its use as currency/investment inevitable, or if it's just an historical accident and we might have fixated on some other metal or substance instead of gold.
posted by straight at 11:38 AM on April 18, 2013


Thanks everyone for the corrections on the nature of Bitcoins.
posted by JHarris at 12:00 PM on April 18, 2013


I hedge against inflation by not having any savings.
posted by Justinian at 12:16 PM on April 18, 2013 [5 favorites]


Planet Money talks to a chemist about whether there's something intrinsic about gold that makes its use as currency/investment inevitable

If there was something intrinsic about gold that makes its use as a currency inevitable that wasn't a matter of historical accident, we wouldn't be getting along just fine using paper money to do the job now. We'd have no choice at any point in history but to use gold as currency.

Gold certainly has some interesting, if not generally useful, chemical properties, but the criteria they set out on that planet money bit for what makes gold such a useful currency are only good criteria due to certain historical accidents--limited tech for printing money, inadequate infrastructure for storing and issuing money, etc.

And they didn't even mention it's drawbacks as a currency--it's heaviness making it impractical to carry around in quantity, it's relative scarcity limiting economic growth potential and contributing to hording and market cornering behaviors that can be economically destructive, etc.
posted by saulgoodman at 12:20 PM on April 18, 2013


The rule of thumb on any commodity is if they are really pushing it, especially in the media, you can be 100% assured that you have already missed the boat. It has moved into the profit-taking phase which is best avoided by the wise. Buy low (around $250 in 2002), sell high to the chumps and suckers...
posted by jim in austin at 12:23 PM on April 18, 2013 [2 favorites]


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

Warren's been playing some Portal lately, eh?
posted by mstokes650 at 12:34 PM on April 18, 2013 [3 favorites]


I shouldn't have said "currency." The Planet Money episode is really just asking whether, if history had been different, some other element (zinc? silicon? aluminum? platinum?) might have played the role in society that gold currently does.
posted by straight at 12:38 PM on April 18, 2013 [1 favorite]


GOLDENFREUDE
posted by triggerfinger at 12:54 PM on April 18, 2013 [1 favorite]


Some goldbugs, especially the survivalist types, claim that gold will hold value even when fiat currency fails. My response is that if society has degraded to a point that fiat currency is no longer valid, any type of currency which is based on social construction, including gold (ie anything other than bartering) will also fall short.* Let me paraphrase a Facebook conversation I once had concerning this topic:

Goldbug: Come the fall of society, you'll want to have some gold!
Me: Wouldn't you want food and medicine instead?
Goldbug: You could use gold to get food and medicine!
Me: If you were living in a post-apocalyptic hellscape, but possessed stockpiles of food and medicine, would you get rid of it for some shiny metal?
Goldbug: Oh. [They had apparently never seen things from the supplier's side.]

*(And, of course, people who invested in gold without having physical custody of said gold would be screwed anyway.)
posted by dhens at 12:57 PM on April 18, 2013 [5 favorites]


Fixed interest debt is a far better hedge against inflation IMO. The trick is to arbitrage appreciation/depreciation and cash flow vs debt on assets. It is much lower risk to do this than rely on the whims of the commodity markets.
posted by humanfont at 1:07 PM on April 18, 2013


saulgoodman: the criteria they set out on that planet money bit for what makes gold such a useful currency are only good criteria due to certain historical accidents--limited tech for printing money, inadequate infrastructure for storing and issuing money, etc.

And they didn't even mention it's drawbacks as a currency--it's heaviness making it impractical to carry around in quantity, it's relative scarcity limiting economic growth potential and contributing to hording and market cornering behaviors that can be economically destructive, etc.
You've confused a lot of ideas here.

The limited tech for printing money was not an accident; printing is an advanced technological development. Ditto on the infrastructures: they're attributes of societal advancement, not something like left-handedness or having a lot of geothermal energy.

And gold's "heaviness"... isn't. Dollar per dollar, gold is a helluva lot "lighter" than any other metal. A dollar's worth of copper weighs about 5 ounces; a dollar's worth of gold is 0.0007 ounces. What you mean to say is that gold is dense, but that's an advantage, too: would you rather carry a 100 BBs or a 100 pingpong balls in your pocket?

And relative scarcity is inevitably tied to price. Again, you want scarcity. As a kid, I developed a monetary system amongst my friends where a handful of dirt was our unit of exchange (not making this up). Guess how long it took for me to discover the nature of inflation? Do you really want world markets tied to something that anyone on earth can mine at a rate of 1,000 tons per day per acre - or that can only be mined at 1 ton per day per planet?
posted by IAmBroom at 1:14 PM on April 18, 2013


Back in my art history/archaeology days the real value of gold to us was that it was inert. That meant that really, really old stuff could be recovered intact. Oh, and being malleable with a low melting point was a plus too. Made it easier to work with and therefore more ubiquitous than its scarcity might suggest...
posted by jim in austin at 1:41 PM on April 18, 2013


I take "historical accident" to mean nothing more than "due to historical circumstances"; the level of social advancement at any given time is as much a matter of historical accident as anything, discredited ideas about the inevitable linear progression of human development over time notwithstanding. (Sure, technological development is cumulative--but we've had sufficient technology to produce something comparable to printed money for a long, long time now.)

would you rather carry a 100 BBs or a 100 pingpong balls in your pocket?

I'd rather carry paper money.

And relative scarcity is inevitably tied to price. Again, you want scarcity.

I don't believe that. I believe that idea's no more than received cultural wisdom. Price is tied to whatever we choose to believe and accept by convention that price is tied to. The utility of the relative scarcity of currency is only that it makes it harder to counterfeit, but the real point shouldn't be to keep currency scarce just because scarcity somehow magically confers value on otherwise worthless things.

It's useful if a currency is difficult to fake, so that people can't just create themselves a bunch of currency without returning any value to the economy. Scarcity of the raw material used to make a currency is one, very crude but inherently limiting way to help accomplish that. Having a central money printer and mechanisms for distributing currency only in exchange for something of an agreed upon economic value is another.

If the scarcity of the material used in its production is the only thing that makes a currency valuable, that discourages economic productivity in the long run.
posted by saulgoodman at 1:54 PM on April 18, 2013 [1 favorite]


There are ultimately a finite number of bitcoins. The system is set up so that as the rate of computation grows, the difficulty of creating new bitcoins grows along with it.

In that sense it's designed to be sort of like gold mining, except with video cards as sieves.


But that's the result of an algorithm that requires someone to make the anticipated difficulty adjustments. So far that's happened....but is it automatic? If you follow that link back to it's source, it's this forum discussion. And isn't its possible to "fork" the block-chain? So at some point people who don't like the increasing difficulty could split off their holdings? I've read some discussion of that possibility but I'm not expert enough to evaluate its plausibility or practicality.

Anyway, the scarcity and finitude that results from artificially adjusted algorithmic difficulty is not the same as coming from the scarcity of the element and the finitude of the earth it's found it.

And the point was more about the perceptual differences between gold and bitcoin then their realities. In that way, that Bitcoin is not as infinite as it seems is a nice flip-side to the disconnect between gold the metal and gold the asset, making gold the asset more infinite than it seems....
posted by snuffleupagus at 2:19 PM on April 18, 2013


But that's the result of an algorithm that requires someone to make the anticipated difficulty adjustments.

And isn't its possible to "fork" the block-chain?


The difficulty adjustments are automatic, baked into the protocol. If you tried to mine a block with a lower difficulty than the agreed consensus, the other clients would reject it. Same goes if you tried to make any other major change -- it'd be an alternative cryptocurrency (like Litecoin for example).

I don't see alternate currencies as a bad thing, though. Their utility is proportional to the number of people in the network, so there will likely only be a handful in widespread usage.
posted by RobotVoodooPower at 3:20 PM on April 18, 2013


In the biz it appears that operation of the milking-machine is known as "profit-taking". (The Wiki article is refreshingly brief).
posted by Twang at 4:59 PM on April 18, 2013


And relative scarcity is inevitably tied to price. Again, you want scarcity. As a kid, I developed a monetary system amongst my friends where a handful of dirt was our unit of exchange (not making this up). Guess how long it took for me to discover the nature of inflation? Do you really want world markets tied to something that anyone on earth can mine at a rate of 1,000 tons per day per acre - or that can only be mined at 1 ton per day per planet?

Scarcity? You don't want scarcity in a specie. You want flexibility as a tool to rescue, drive and manage the economy. Scarcity of a limited resource exposes the economy to two things:

1) Eventual deflation as the number of people increases and the amount of specie doesn't keep pace.

2) Localized inflation as increased amounts of the specie are found in areas where the specie is found en masse. See California in the gold rush days.

The Fed hasn't always been the best arbiter of what's right but the time between depressions, the time between bank crashes and the stability of the global economy at large has been unquestionably increased now that humans have taken control of their own financial destiny vs waiting for some asshole to pull something shiny out of the ground and keep shocking the financial system each time.

Do you really want world markets tied to something that anyone on earth can mine at a rate of 1,000 tons per day per acre - or that can only be mined at 1 ton per day per planet?

Neither. I want it to be controlled by a series of competent authorities implementing sensible monetary policy. The aggregate deflationary nature of specie backed currency is simply a moral argument against inflation because it "punishes" the thrifty and responsible.
posted by Talez at 5:25 PM on April 18, 2013 [3 favorites]


All good points Talez, but for the early adopters of Bitcoin the flexibility of central banks and the fiat currencies they manage is the source of all our economic woes. The monetary theory Bitcoin was built on may be at odds with accepted monetary theory and good policy. However Bitcoin don't care.
If our current mainstream monetary theories are right, then the Bitcoin economy will remain extremely volitale and over the long term interest will wane as investors lose confidence in it and the Bitcoin economy will collapse. The Bitcoin believers will argue the opposite. That as Bitcoin becomes more accepted, other currencies will be less attractive because Bitcoin has a known supply that cannot be inflated by gov whim.

Of course if governments got serious about cracking down on Bitcoin the underlying rules could be changed. Owners of the big mining setup a have significant assets ties up in their hardware. They would be vulnerable to government pressure to change the rules of transaction processing and which blocks are valid in the chain. There is also the related problem that your crypto cash is safe so long as the mining of blocks remains NP hard. Should someone find a flaw in sha-256 then the public p2p registry of transactions would be vulnerable. Updating to a new hashing algorithm has been discussed, but getting consensus on the next standard gets very difficult as the network expands. Look at how hard it has been to move to ip6.
posted by humanfont at 5:46 PM on April 18, 2013


The difficulty adjustments are automatic, baked into the protocol. If you tried to mine a block with a lower difficulty than the agreed consensus, the other clients would reject it.

Since my previous comment I've read up a little. How about this:

If you mined a block that the agreed consensus doesn't accept then it's not counted. But what's to stop you from minding blocks "in advance," hoarding them, and claiming them only once the accepted range of hash values has risen to the extent where they're valid?

There might be no reason to do this, unless you could pick out some blocks as easier than others.
posted by JHarris at 7:15 PM on April 18, 2013


sammyo: "Actually it's too bad there isn't a bit more of it, it would make really good wire, much better than copper."

Besides gold having a higher resistance than copper because it can't be annealed and it is so soft it would suffer from aluminum's creep problem which loosens connections causing arcing and fire. It's also very heavy so more support would be needed for the same cross sectional area of conductor.

Gold would be wizard for plating bus bars and lugs though. And it might be interesting to see what sort of interesting alloys could be whipped up. I'm thinking specifically of a brass/bronze substitute that could be used for buried connections.
posted by Mitheral at 7:50 PM on April 18, 2013


Gold's crash this weekend is.

Yoda? I haven't heard from you since begun the clone war had.
posted by barnacles at 8:27 PM on April 18, 2013 [2 favorites]


You can't mine blocks in advance because each block is part of a chain and you need the hash from the previous block to make the next one.
posted by humanfont at 8:28 PM on April 18, 2013


Aah, clever!
posted by JHarris at 10:42 PM on April 18, 2013


I shouldn't have said "currency." The Planet Money episode is really just asking whether, if history had been different, some other element (zinc? silicon? aluminum? platinum?) might have played the role in society that gold currently does.

I think the only "intrinsic" thing about gold that has made it survive as a valuable metal over the years is that it just happens to be widespread over the planet enough that supply has been more or less steady, and that it doesn't degrade. Same for silver. Platinum is too rare. Aluminum, once highly valued because of the expense of refining, not so much any more. It's the most abundant metal in the earth's crust.
posted by gjc at 7:25 AM on April 19, 2013


I'm no gold bug, but the comments here that gold as a hedge against catastrophe are wrong.
Gold has proven a suitable way to carry wealth from one stable period of civilisation, through catastrophe, to another.
Sure, I'd rather food and ammo in a post apocalyptic wasteland, but I would rather gold in my pocket if I am trying to flee pre-war Germany or present day Afghanistan.
So goldbugs are betting against a 'forever' catastrophe.
All that said, in the current world, the risk of that degree of financial devastation is slim, and there are other assets likely to be respected that give a return (e.g. real estate, equities etc.).
Holding any sizeable fraction of your wealth in gold if you are in a western economy prevents you gaining the return of the productive investments on offer, and will be a recipe for less wealth over time.
posted by bystander at 11:57 PM on April 21, 2013


Of course, you can get rich as a goldbug by exploiting other goldbugs on price changes -- pure price speculation, in essence. (If that's the right way to describe it.) Although maybe then you're not really a goldbug, you're a commodities investor/trader.
posted by snuffleupagus at 3:53 PM on April 22, 2013


Gold has proven a suitable way to carry wealth from one stable period of civilisation, through catastrophe, to another.

There is no evidence of this. When roman civilization collapsed and warlords took power in fundal Europe they took the gold and the land from the previous owners.
posted by humanfont at 4:10 PM on April 22, 2013


Well, it was still carried into another era and society. Albeit by the previous era and society's conquerors. Probably not the previous owner's intended plan for its preservation. Read the label carefully I suppose.
posted by snuffleupagus at 5:05 PM on April 22, 2013 [1 favorite]


Crashes like this are a good way to find out how markets work....You don't have to be a stock investor or a math whiz to figure it out, either – you just have to have a good grasp of news and human psychology.

Hah. Then why didn't he tell us how markets work? It is practically meaningless to talk like this after the fact. If he tells me what gold is going to do tomorrow or next week or next month, and is right more often than not over a statistically significant sample size, then I will give him credit.

I think the lack of massive inflation predicted by goldbugs is a big reason why gold prices are crashing. That and fear. Once gold starts falling, no one knows where it will stop, because its true value is something of a mystery. It is actually deflation in housing and other assets that may be a bigger problem if stimulus fails.
posted by Golden Eternity at 5:45 PM on April 22, 2013 [1 favorite]


While gold isn't an infallible way to transport wealth during a catastrophe, it is a pretty good one. Certainly better than deutschmarks or roubles or zimbawean dollars, and you can carry $10,000 worth a lot easier than the same in whiskey or some other barter good.
But yes, someone with a gun or an army may well take it from you.
posted by bystander at 5:46 AM on April 23, 2013


Or the government. Lots of countries are cracking down on gold smuggling.
posted by triggerfinger at 6:34 AM on April 23, 2013


JHarris: " So then... why? Why BitCoin? I guess it serves as a relatively untrackable store of value, except it's not really valuable. It's kind of rare and that's it. You can't even show it to friends and say 'that's only one of 3,790 ever made" because it's wholly ethereal. Who in their right mind would care?"

Glibertarians and money launderers.

Even Ron Paul is unimpressed.
posted by tonycpsu at 9:14 PM on April 23, 2013


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