The Real Price of Gold

December 29, 2008 1:18 AM

We've talked about gold on Metafilter before (1 2 3), and while the price of gold as a commodity rising to record levels again, nobody is talking about the real price of gold. Unfortunately, small-scale mining is sometimes crucial to the livelihood of communities, for example in Suriname (1 2). Although there are attemps to make mining cleaner, the way growth in demand is outpacing supply, combined with the belief that it is a perceived safe-haven store of wealth, it is likely the negative effects will be with us for many decades.
posted by DreamerFi (65 comments total)

So now I can add gold to the list of Shit I've Never Liked And Have Never Bought - along with Budweiser, coffee, diamonds, chocolate, cocaine, heroin and boy/girl band records? Cool.
posted by chuckdarwin at 1:44 AM on December 29, 2008

As far as I can tell, the only reason gold is valuable and considered "real" wealth and not just another symbol like any form of cash is that it -- as you say -- costs many lives to get it out of the ground. Like it's death money. (Diamonds too.)

Other than some interesting conduction, fire resistance, and malleability properties, the only other reason I can figure people think this shit is somehow "worth" more than its weight in food or clothing is that it's all shiny.

People are stupid.
posted by fourcheesemac at 2:29 AM on December 29, 2008 [6 favorites has favorites]

The side effects of pollution are, no doubt, a very, very serious problem.

But the FPP doesn't note that most of current environmental problems originate from illegal mining. Any legal corporate entity that pollutes quickly pays the price and is able to; a fact that isn't lost on (cash hungry) governments where mining takes place.

In any case, gold (and silver as it typically is extracted during gold mining; there are very few silver only mines) mining is toxic due to the chemicals used to separate bullion from the rocks.

The chemistry and techniques of gold mining haven't changed markedly in well over one century.

The basic approach has tons of ore laden rock extracted, crushed to increase surface area, and leeched with a potent solvent which dissolves bullion, causing it to go into solution. The solution can then be captured and solvent removed to leave bullion (i.e., gold or silver). The amount of ore laden rock that must be manipulated will be startling to those unfamiliar with mining

From each 200-ton load of rock and ore, Denver-based Newmont, the world's largest gold producer, will extract an average of about $1,800 worth of gold

the article goes on to note this enough gold for "a dozen wedding bands. "

In any case, the most commonly used solvents are:

• Cyanide -- as little as a milligram is fatal to humans, causing suffocation.
• Mercury in vapor form -- corrodes membranes of the body.
• Aqua Regia -- a concentrated mixture of hydrochloric and nitric acid -- toxic and very, very corrosive, as you'd expect, but also explosive if handled improperly.
• Thiourea -- a thyroid poison for humans and potentially carcinogenic even in small doses; so dangerous is Thiourea that it is explicitly noted on the Dangerous Substances Directive (67/548/EEC)

In terms of history, first we saw mercury amalgamation deployed and then later cyanide leaching became favoured due to it's relatively low cost and high recovery. Regardless of the technology employed, these chemicals, if improperly used, will contaminate the environment and kill, perhaps for generations.

Until a couple of years ago we used to hear alot regarding alternative recovery mechanisms, specifically, the Haber Gold Process for the hydrometallurgical extraction of bullion, but they seem to have gone quiet.

Too bad as this is, as the FPP illustrates, a serious problem for the industry.

Great post - many thanks

Hey is it just me, or does that Global Mercury Project 404 for every link off the top level page?
posted by Mutant at 3:02 AM on December 29, 2008 [10 favorites has favorites]

People are stupid, but there are rational reasons for gold being valuable. The shininess is a welcome bonus, but the main things are that it doesn't rot or corrode under normal conditions (you want a store of value to be as imperishable as possible) and is rare and not readily made any commoner. The death thing helps with rarity, granted, but it would be better still for its value if no-one died because there were no more in the ground at all.
posted by Phanx at 3:19 AM on December 29, 2008

fourcheesemac: fiat currency has even less "value" in and of itself: it's just paper! (Or a particular configuration of bits inside a computerised record somewhere.)

Gold is not valued because it has intrinsic worth, but because it has many qualities which make it an ideal medium of exchange: it doesn't degrade with time, is fungible, portable (ish) and difficult or impossible to forge convincingly.

Of course, governments down the ages have always tried to debase their coinage: an art which reached it's apotheosis with the built in inflation targeting associated with modern fiat currencies.
posted by pharm at 3:46 AM on December 29, 2008

Actually of course, gold has *some* intrinsic worth: both as an industrial metal & for decorative purposes. That's separate from it's value as a medium of exchange though.
posted by pharm at 3:47 AM on December 29, 2008

Tin costs money to mine. It's durable. It doesn't corrode under normal conditions. And it's rare unless you've got a tin mine to your name.

Paper costs resources to make, requires trees or cotton fiber (which makes paper currency quite durable under good conditions) and it's rare as long as it's considered "money." I can't just print up some more, nor is any old piece of paper worth $10.

The argument is circular. Gold isn't "rare" in any absolute sense -- no rarer than fresh water or safe food. There are billions of tons of it under the earth. None of its industrial uses are exclusive in the modern era -- they can all be met with other metals now.

No, gold is "valuable" because it's an old symbol of value, that's all. If we agreed tomorrow that it was worth no more than some other metal that is equally "rare" and hard to acquire or refine, it would be nearly as worthless as tin.

People want to believe there is some intrinsic form of value or wealth other than food, clothing, and shelter. Because if that isn't true, than wealth is a lot less "real" for anyone who doesn't own a farm.
posted by fourcheesemac at 3:59 AM on December 29, 2008 [5 favorites has favorites]

The biggest thing that a commodity currency does is prevent abuse by the government. Paper currencies all cost the same amount, no matter how much 'value' they represent; the government just adds zeroes and can try to extract more wealth from the economy with the same real input, ie, essentially nothing. A $1 bill and a $100 bill cost about the same to print, but one can extract a hundred times as much real goods and services from the economy.

Gold is 'valuable' because it's rare and difficult to mine; it can't be invented from nothing. As you're trying to point out, any commodity would probably work. Mises says that money is just the commodity that's most broadly accepted; after you get past a certain number of people valuing a particular commodity, it becomes accepted in trade because other people will take it. Once you get to the network effect, that commodity becomes a form of money. Gold, silver, and copper have all been money in the past: gold is the 'best' of those because it doesn't corrode, but the value can be too high for many routine trades.

Wealth is indeed a hard thing to define, but one thing is absolutely, certainly isn't, is extra zeroes printed on a piece of paper. I'd argue that goods, food, energy, housing, and the means of creating those things are probably the most direct forms of wealth. You have progressively more indirect ones, services that help the production of goods, or knowledge of how to create new goods, or the ability to teach children how to create and produce new things. But modern currency is just debt issued against those other things; it's a promise to pay some nebulous amount of future production from the economy as a whole. And those promises can be issued in wild abundance, and in fact have been -- witness the enormous asset inflation and subsequent crashes of the last decade.

No matter how much currency is in circulation, it doesn't directly affect the real wealth-producing capacity of the economy. It communicates, abstractly, the relative abundance and scarcity of production and consumption. But real money is a commodity; it responds to market forces like other ones do. When there's not enough of the monetary unit in circulation, more will be produced. If there's too much, less will be produced, because it's not worthwhile making it below the cost of production plus a small profit. This is entirely orthogonal to what happens with fiat money, which is loaded into the system to achieve political ends, and has terrible side effects.

The drastic run-up and then decline of your house price is a very good example of something that would have been much smaller and far less destructive with a commodity-based currency; the commodity underneath would have started moving in strange ways. A lot of it, for example, would have gone to China and Japan. This would have constrained our economy and stopped our irrational exuberance far earlier; the damage would have been much less severe.

Money serves as the primary method that the economy communicates with itself, and having the government manipulating the supply means that the messages get hijacked, and things get out of adjustment. At this point, we're running a staggering trade deficit, a staggering government deficit, and a staggering deficit on the part of individual people. We've been able to do this because dollars that foreign governments kept, to prop up their own currencies, could be replaced at will by the Fed and the financial system, so the message of scarcity didn't get to our economy. "Send all the debt overseas you like," said the Fed, "we'll just make more." And we have, thus, dug ourselves into the deepest hole in history.

And, with all the bailouts, we just keep digging.
posted by Malor at 4:31 AM on December 29, 2008 [6 favorites has favorites]

fourcheesemac: You can't personally just print up some more money, but any government certainly can, as can any moderately well funded organisation that can avoid being squashed by said government. Most of us are happy to use fiat currency on a day to day basis since any debasement of the currency is slow enough for such day to day usage to be viable.

The fact that there's a huge amount of gold sat in the ground is irrelevant: it costs significant resources to get that gold into a form where people will accept it as money. It's this constraint on supply that is one of the properties that makes gold a medium of exchange. Of course, commodity based currencies can suffer from inflation too: the Spanish economy of the time was pretty much destroyed by the influx of gold and silver from South American a few hundred years ago IIRC.

What gets used as a medium of exchange may be an arbitrary choice, but gold fits all the reasonable criteria, and gold it was in the past, so gold it is now. That's just the way things are.
posted by pharm at 4:54 AM on December 29, 2008

It costs money to print money, just as it costs money to dig up gold. That one costs more than the other is irrelevant to my point, which is that gold is just as arbitrary a symbol of "currency" value as any other medium. You can't eat or drink or live in gold, so minus an agreement on its symbolic value, it is fungible with any other symbolic store of value. All symbolic stores of value eventually refer to the labor cost of producing the equivalent of that value in food, clothing, shelter, or other basic human needs.

Any government can print money to pay miners to dig for gold. It's a circular argument.

And gold in the ground is not irrelevant. It's no more rare than cobalt or cadmium or zinc by the measure of "it costs money to dig it up." So what? It costs money to dig up anything. It's not more expensive to dig for gold than it is to dig for diamonds or zinc. But I don't see people urging governments to get back on a zinc standard.
posted by fourcheesemac at 5:12 AM on December 29, 2008 [2 favorites has favorites]

(But if the argument is "it has always been gold" is serious, then I suggest to you that the case for *food* as a primary store of value is stronger. Personally, I still think people love gold because it's shiny. Big whup.)
posted by fourcheesemac at 5:15 AM on December 29, 2008

Um. Food degrades rather rapidly. This makes it pretty useless as a medium of exchange. Of course, sometimes, food is more important than anything else, but that still doesn't make it a form of money.

At this point I'm not exactly sure what your point is anymore fourcheesemac. As I understand things, anything that gets used as a medium of exchange acquires a value over and above it's intrinsic use-value. This doesn't make the people that use it stupid: on the contrary it's perfectly rational — "money" always has extra value over and above it's intrinsic use-value since you can easily use it to buy other stuff, rather than have to engage in barter which is an extremely inefficient way to purchase anything.

Gold is money because people in general are willing to treat it as such, so as a result it has extra value. Lot's of ephemeral things have value only because everyone (or enough of us) engage in a shared belief that they do so. That doesn't make the value any less real.
posted by pharm at 5:32 AM on December 29, 2008

Well, obviously a thread like this is going to bring out a the gold bugs.

Look, there is no possible way for gold to replace paper money in the economy. There isn't enough of it to cover all the money out there. I looked up the figures a while back, but the bottom line is that, even if you took all the gold believed to have been mined in the history of man, it would need to cost $10,000 to cover the U.S. M2 money supply. It would probably need to cost $50,000 to $100,000 an ounce if it was really going to be used to back all of the world's money.

Also, the idea that "we would have seen the gold move to china" is ridiculous. The gold would have sat in the same vaults and just paper or electronic records would have moved.
posted by delmoi at 5:50 AM on December 29, 2008 [1 favorite has favorites]

Oh, and historically one of the reasons that gold was popular was because it was the densest known material. If you mixed it with anything, even led or iron, it would become less dense, and you could measure that.

Of course, today you could mix it with uranium or something.
posted by delmoi at 5:51 AM on December 29, 2008 [1 favorite has favorites]

The drastic run-up and then decline of your house price is a very good example of something that would have been much smaller and far less destructive with a commodity-based currency; the commodity underneath would have started moving in strange ways. A lot of it, for example, would have gone to China and Japan. This would have constrained our economy and stopped our irrational exuberance far earlier; the damage would have been much less severe.

During the Depression, FDR fixed the price of gold. Previously he made private gold ownership illegal. So, you have direct currency manipulation and can't use gold legally for currency. This all came from an era where the gold standard was the standard. It didn't make the US more "disciplined". This depression happened while we were on the gold standard. Here's a quote from the article:

"The crash came in Central Europe in May 1873, as it became clear that the region's assumptions about continual economic growth were too optimistic. Europeans faced what they came to call the American Commercial Invasion. A new industrial superpower had arrived, one whose low costs threatened European trade and a European way of life.

"As continental banks tumbled, British banks held back their capital, unsure of which institutions were most involved in the mortgage crisis. The cost to borrow money from another bank — the interbank lending rate — reached impossibly high rates. This banking crisis hit the United States in the fall of 1873. Railroad companies tumbled first. They had crafted complex financial instruments that promised a fixed return, though few understood the underlying object that was guaranteed to investors in case of default. (Answer: nothing)."

Sound familiar? We were on the gold standard then. In many ways, it was worse than the "Great Depression."

Most of the gold bugs on the internet today are apocalyptic doomsayers. Gold is a good safe haven for money, but it's not a good investment, per se, and it doesn't prevent economic calamity.
posted by krinklyfig at 6:03 AM on December 29, 2008 [4 favorites has favorites]

All symbolic stores of value eventually refer to the labor cost of producing the equivalent of that value in food, clothing, shelter, or other basic human needs

The thing about gold, though, is that the supply is limited - not because there aren't endless tons underground, but because it is expensive to extract and refine. And over time, it gets more expensive to extract and refine, because the cheaper sources get played out first.

The labor cost of producing a given amount of fine gold is actually fairly close to the labor cost of the things it will buy, because there aren't massive existing reserves available at fixed cost; the price of gold needs to rise high enough to make the expected return on a gold exploration and mining worth the investment cost.

If some entity with a large existing gold store decided to attempt to depress the gold price by releasing a flood of it onto the market, a certain number of existing mines would become uneconomical to run, and would be shut down until demand exceeded supply again.

The net effect is that the price of gold in dollars is pretty much arbitrary, but the price of gold compared to a given basket of goods (food, clothing, shelter and so on) doesn't move as much as your fiat-currency-trained intuition might lead you to assume.
posted by flabdablet at 6:16 AM on December 29, 2008

This would have constrained our economy and stopped our irrational exuberance far earlier; the damage would have been much less severe.

There is evidence that the gold standard deepened the Great Depression. The problem is that once a government promises a fixed exchange rate, it is vulnerable to speculative attacks. In the case of the Great Depression, the Fed had to raise interest rates during the downturn.

Of course discretionary monetary policy has problems, but I think requiring interest rates to rise during a downturn is a pretty big minus for the gold standard
posted by thrako at 6:21 AM on December 29, 2008

The net effect is that the price of gold in dollars is pretty much arbitrary, but the price of gold compared to a given basket of goods (food, clothing, shelter and so on) doesn't move as much as your fiat-currency-trained intuition might lead you to assume.

Really? So, food and staples are, what, three to four times as expensive today as they were in 2001, when gold was under $300?
posted by krinklyfig at 6:24 AM on December 29, 2008

During the Depression, FDR fixed the price of gold. Previously he made private gold ownership illegal.

What I should have said was that he fixed it at a higher rate. The price of gold was fixed until around the same time we dropped the gold standard.
posted by krinklyfig at 6:32 AM on December 29, 2008

delmoi: If you think I'm a gold bug then you're sorely mistaken :)

NB. Mixing Uranium into your gold isn't going to help you very much: the price of the refined metal is greater than the price of the gold isn't it? Plus there's all the obvious problems like making your gold mildly radioactive.

Now if you want to debase your gold, then tungsten is probably the metal of choice: both cheaper & denser than gold. It can be detected by suitable equipment though, so you'd have to bury it in a the middle of a gold bar or something. Then the owner would have to drill the bar or melt it down in order to detect the forgery.

Apparently there are some gold coins floating around which are really platinum plated with gold which were made back when platinum was the cheaper metal. You'd get the better end of the deal if someone sold you one of these now though.
posted by pharm at 7:00 AM on December 29, 2008

Um. Food degrades rather rapidly.

Not if you can it in industrial quantities, as we've known how to do since at least Napoleonic times.

Essentialize gold all you want. It's an inert substance that meets no basic human needs exclusively, and is no rarer or harder or extract to find than many other inert substances. Therefore, its use as a store of "value" is the same as the way we use any sort of currency, based on an arbitrary convention (I won't get into a semiotic analysis, or a Marxist one, but they both apply). That this particular arbitrary convention is so old that it has become highly naturalized is neither here nor there. So is the idea of "God." Both entail the placing of faith in something you can't prove, and you cannot prove the inherent value of gold over any other representative currency with similar limited use value any more than you can prove the existence of God.

Or to take a thought experiment: you're on a boat in the middle of a stormy sea, facing long odds. You've got a case of oranges and a case of gold bars. Which are you going to consider more valuable at that moment?
posted by fourcheesemac at 7:03 AM on December 29, 2008 [3 favorites has favorites]

fladablet, if your analysis is carried through to its logical conclusion, then it just means gold is an ideal, or very good, form of storage for conventionally agreed exchange values. it provides a benefit of sorts by being portable and durable, as various folks have said above. but so do any number of other elements, substances, and objects with similar or greater actual use value.

but it's still a symbol, and in a different economic model, it's terribly wasteful to have a symbol that costs as much to mine (or manufacture) as its currency value in the real world of use values. i believe that's why we no longer bother with using gold for everyday currency, because it creates an utterly arbitrary limit on the growth of economic complexity, the division of labor, or the creation of surplus value. why spend all that labor extracting something that's *only going to be a symbol* of the use values of other peoples' labor or of specific commodities?

insisting on the intrinsic merit or worth of gold over any other symbolic form of currency is like opposing powered flight because humans don't have wings.
posted by fourcheesemac at 7:08 AM on December 29, 2008 [2 favorites has favorites]

(and by the intrinsic worth argument, we should in fact be calculating all economic values in terms of carbon costs, not gold, if we want a universal symbol for a natural limit on productivity)
posted by fourcheesemac at 7:12 AM on December 29, 2008

fourcheesemac: Canned food weighs a lot per unit value, which is why it isn't generally used as money, except in a few places: I've read that the medium of exchange in some US prisons is preserved fish! Obviously in extremis you'd rather have the food than money of any sort. But you're not using it as a medium of exchange then are you?

There's nothing magic about gold that makes it particularly special, apart from those properties which mark it out as suitable for being a medium of exchange, which happen to be shared with a some other commodities as well. I'm really not sure what you're getting at at this point to be honest: We'd probably be net better off if a bunch of people weren't digging the stuff up out of the ground to put back into vaults somewhere, but it doesn't look like that's going to happen anytime soon.
posted by pharm at 7:16 AM on December 29, 2008

fourcheesemac
I agree with most of your points but tin might not be the best example "Tin costs money to mine. It's durable. It doesn't corrode under normal conditions."http://en.wikipedia.org/wiki/Tin_pest

(Yes, it can be alloyed, no this doesn't invalidate your point - just saying...)
posted by speug at 7:28 AM on December 29, 2008

http://en.wikipedia.org/wiki/Tin_pest
posted by speug at 7:29 AM on December 29, 2008

And I though tin pests were the cousins of gold bugs
posted by thrako at 7:33 AM on December 29, 2008 [1 favorite has favorites]

flabdablet -- "If some entity with a large existing gold store decided to attempt to depress the gold price by releasing a flood of it onto the market, a certain number of existing mines would become uneconomical to run, and would be shut down until demand exceeded supply again."

Ah now this is an interesting point.

I always try to profit in these situations; how can I position my assets (or those entrusted to me) to benefit from dynamics that are beyond my control. I may not approve of actions either proposed or taken, but beyond writing my MP (or Senator depending upon what country I'm agitating in) I can't really do anything more to materially change the situation. Like much of what's going on with the economy now, for example.

So gold and silver? I think we're due for leg up from the recent price retracement, if for no other reason than the monetary and fiscal stimulation the G20 is (perhaps somewhat recklessly at times) engaged in.

But I see another price driver that flabdablet hit upon; for various reasons 2008 saw near record closure of mines while the demand side sharply increased. We saw mines closing in Australia, Nevada and Zimbabwe due to environmental reasons, with a larger number mitigating production due to financial reasons (i.e., high production cost relative to hedged prices, lack of credit). By some estimates a double digit percentage of bullion is no longer entering the supply channel. But demand hasn't reduced as much.

This Christmas, with few exceptions, I gave everyone small quantities of Gold and Silver. One tenth of an ounce Krugerrands or 5G bars of Gold, and the kids loved these Aussie One Ounce Silver coins with Kuala Bears on the back. Getting physical metal was very problematic here in London; I had to place lots of calls and then rush to close the deal as any supplier quickly sold out. For whatever reason (I've got my own private theories), physical bullion is very tough to source.

To me this is a classic trading opp; commodity prices across the board have cratered and while suppliers reduce output for a variety of reasons, the demand side is either constant or increasing. This isn't true solely for bullion; I think agricultural commodities will have a nice run as well simply because of the recent price drops, accentuated by farmers inability to finance seed and in some cases fertilizer. Even if they wanted to plant, at times they can't finance the activity.

This doesn't bode well for supply (think contraction) and prices really have only one direction to go from here.

Interesting comment that identifies a sweet trading opp. Like many of these opportunities all the signs are there in open sight; folks just have to open their eyes. Commodity prices aren't going to stay low forever, and now is the time to be buying.
posted by Mutant at 7:58 AM on December 29, 2008 [2 favorites has favorites]

Obviously in extremis you'd rather have the food than money of any sort. But you're not using it as a medium of exchange then are you?

Aren't you? If someone else shares those extreme conditions, the food is also the more valuable medium of exchange (maybe I've spent too much time with Eskimos, for whom this is basic truth).

I grant gold's portability, and durability. That and a box of crackers will feed you.
posted by fourcheesemac at 8:07 AM on December 29, 2008

Does going to a gold standard mean having enough gold to back up M0 (~actually paper currency) or M1-M3 (new money created by making loans)? I say that the problem isn't that we don't have gold to back up M0, its that we don't have paper to back up M1, M2 and M3 (by definition). We are already on our way I guess, ie. the collapse of commercial paper.
posted by 445supermag at 8:10 AM on December 29, 2008

And as I think about it, I'd be fine with putting the whole globe on a carbon standard, denominate all currency in carbon credits, and be done with it.

pharm, I think we agree, which is good because I didn't think we were arguing. You're making the case for the historical emergence of gold as an essentialized store of exchange value. But like all historical constructions, the value of gold is both "real" (by social convention and institutionalization) and subject to deprecation if confidence in its value wanes.

Some mollusk shells are rare and hard to find or get at. They would make an excellent currency -- lightweight, portable, shiny -- and have for may human cultures.

As an anthropologist, I see the degree of faith people place in the materiality of currency -- any currency, of any material -- as a classic example of magical thinking. But of such thinking is any culture made.
posted by fourcheesemac at 8:12 AM on December 29, 2008

I once got into a taxi with three young men in it in Ghana. I figured it was just a regular shared taxi, but it turned out that these men were friends who'd decided to give me a ride so they could share their exciting news. One of them asked me "have you ever seen gold? Real gold?" I was momentarily confused; gold is everywhere in Ghana, and around the world, as jewellery, of course. I shook my head blankly, and they unrolled a dirty, crumpled Ghana Cedi (the Ghanaian paper currency). In the centre of it was a small nugget of something that didn't look much like gold. I looked up at his face. "Hold it" he encouraged me. All the men were smiling big, excited smiles. I picked it up, and though I've heard all my life that gold is heavy, I was surprised at its weight. I had obviously never held this much gold before. "We're going to have it weighed!" "He found it on his farm!" They were speaking excitedly, quickly and over-top of each other. I was only going a short way, so I soon got out of the car while they waved away my fare with joyful laughter.
posted by carmen at 8:47 AM on December 29, 2008 [2 favorites has favorites]

why spend all that labor extracting something that's *only going to be a symbol* of the use values of other peoples' labor or of specific commodities?

I'm having trouble with this. I see that if there is a contraction then it would be good to have currency with intrinsic value, because the unneeded currency could be used elsewhere. Is this the full extent of the benefits, or are there other reasons to use a currency with intrinsic value? If the economy is not contracting then shouldn't it be irrelevant whether the currency has real productive uses or not?
posted by thrako at 8:56 AM on December 29, 2008

A less polluting way to recover gold from ores is biotechnology -- using bacteria that can metabolize minerals and metals. Biomining is used to extract gold from very low grade sulfide gold ores.
posted by binturong at 9:08 AM on December 29, 2008

Of course, today you could mix it with uranium or something.

Indeed you could, delmoi; I've been waiting for several years now for a scandal in which very substantial amounts of depleted uranium are out there masquerading as gold in the less sophisticated bullion depositories of the world. (I haven't seen a price quote for depleted uranium, however-- maybe it wouldn't be profitable.)
posted by jamjam at 9:14 AM on December 29, 2008

A less polluting way to recover gold from ores is biotechnology -- using bacteria that can metabolize minerals and metals. Biomining is used to extract gold from very low grade sulfide gold ores.

You're only saying that because Michael Crichton is dead.
posted by srboisvert at 9:32 AM on December 29, 2008

man, fourcheesemac can shadow-box like a motherfucker
posted by bonaldi at 9:39 AM on December 29, 2008 [1 favorite has favorites]

I've been waiting for several years now for a scandal in which very substantial amounts of depleted uranium are out there masquerading as gold in the less sophisticated bullion depositories of the world.

As pharm said above, Tungsten is a more likely choice. Other than drilling, I would think you could relatively easily test bullion by running a current through it and measuring the resistance.
posted by burnmp3s at 9:41 AM on December 29, 2008

Gold is the sweat of the sun.
posted by everichon at 9:43 AM on December 29, 2008

Both tungsten and depleted uranium are less dense than gold (if Wikipedia's density numbers are correct). Osmium or iridium could work though.
posted by b1tr0t at 10:11 AM on December 29, 2008

fourcheesemac: your comments are all over the place. What is your thesis, exactly? That you can't eat gold? I don't think anyone's going to disagree with you, there.

You are, of course, conveniently ignoring all of the practical explanations given throughout the thread about why gold was historically selected, again and again, independently by various cultures in the world, as the preferred medium for value-exchange.

Unless you're arguing against the whole concept of cultures even selecting a medium at all. But, that's completely insane.
posted by odinsdream at 10:30 AM on December 29, 2008

Besides chemical testing of gold, you can test specific gravity as well. Gold and tungsten are awfully close (about 1% difference), but if you are dealing with "pure" metals (99.99%) and a sophisticated displacement test method, I can't imagine it being too difficult to detect counterfeit gold.
posted by mrmojoflying at 10:38 AM on December 29, 2008

So gold and silver? I think we're due for leg up from the recent price retracement, if for no other reason than the monetary and fiscal stimulation the G20 is (perhaps somewhat recklessly at times) engaged in.

...

Interesting comment that identifies a sweet trading opp. Like many of these opportunities all the signs are there in open sight; folks just have to open their eyes. Commodity prices aren't going to stay low forever, and now is the time to be buying.

What retracement is that? Gold is down 12.5% from its highs while copper, zinc, and nickel have shed 2/3 or 3/4 of their value. Platinum (you link to it)has come back a bit, but as Rhodium (like platinum, used primarily in autocatalysts but unlike platinum not a very liquid market) hasn't moved a whit, I suspect speculation (rather than industrial demand) is driving the price.

Regarding the softs, my checks have shown that the "farmers couldn't get financing" story looks a lot like a myth, even in emerging markets. The OECD stocks/use ratio seems to be the primary intermediate-term price determinant, anyway, which is why everyone gets all worked up over the WASDE report. I'm probably wrong, but I can't get much conviction worked up to take either side and I see far better places to fish right now.

Anyway, I think you're doing your faithful readers a disservice by lumping a lot of these commodities together and making a "buy" call. Maybe your August 7 prediction was a trading call, rather than investment advice (and I hope so, as the BKX is down 40% from there), but in my humble opinion given your status on this website I think you should be very, very careful how you choose your words, lest some of the uninitiated choose to act upon them.
posted by Kwantsar at 10:41 AM on December 29, 2008

odinsdream: I think his thesis is this:

Personally, I still think people love gold because it's shiny. Big whup.

There's also the fact that, you know, cultures engaged in commerce with eachother. If one big, powerful group was using gold, then it would be worth something to any other culture that came into contact with it, and then it would spread along in that way.
posted by delmoi at 10:49 AM on December 29, 2008

Okay. Put some lettuce in your wallet, and a gold coin. Wait 1 week. Now, see which will buy you a cup of coffee. What, no one wants the lettuce?

Okay. Now, try this: Make a necklace out of gold chain, and another out of garlic cloves. Find a beautiful woman. Offer her to choose a necklace. Which one does she want?

See, if all else fails, some powerful person is going to find gold of value to decorate their mate. Whether the value is as high as you'd prefer, who knows. But gold will still have that value, regardless of how far things tumble.

Of course, if you're starving, a bushel of wheat will do more to ease your pain. It does require a certain amount of economic activity to get what you want for gold. But that isn't much. Maybe sell it to the local dentist. That shiny metal is also soft. Really, an amazing set of properties to put into one metal.
posted by Goofyy at 10:50 AM on December 29, 2008

Okay. Now, try this: Make a necklace out of gold chain, and another out of garlic cloves. Find a beautiful woman. Offer her to choose a necklace. Which one does she want?

That depends, are we being chased by vampires?
posted by The Whelk at 11:01 AM on December 29, 2008

And which kind of vampires? The hot, dreamy, sparkly self-restrained vampires, or the traditional ravenous bloodsuckers?
posted by weston at 11:09 AM on December 29, 2008

You are, of course, conveniently ignoring all of the practical explanations given throughout the thread about why gold was historically selected, again and again, independently by various cultures in the world, as the preferred medium for value-exchange.

except that none of those cultures exist in the modern world with a modern economy

the real problem with gold is that it's impractical to buy a candy bar or a head of lettuce with it - like it or not, you're going to have to use something that represents that gold instead - and by doing that, you've just created the ability for governments or banks to cheat by creating more representation than they have gold to back - and history shows us that eventually governments or banks WILL do this

so we use symbols on paper (and electronic screens) to stand for labor, candy bars, lettuce, whatever we want to buy or sell - to say that it should all represent x amount of gold and gold only is just financial fundamentalism
posted by pyramid termite at 11:19 AM on December 29, 2008

I think you should be very, very careful how you choose your words

IANAInvestmentAdvisor

IANYInvesetmentAdvisor

Consult your own investment advisor.

As a side note, I sent Mutant's comments to my father, who has made buying underpriced gold and silver from other antique dealers his avocation for the last 50 years (hence my lifetime's worth of familiarity with antique and flea markets). He is much more concerned about the availability of metal to buy, which dries up dramatically with every shift upwards because, in his words, "Everybody becomes a speculator and starts to educate themselves." Of course, we're talking about buying bullion in this thread, which he buys only occasionally, but his advice to me has always been "You make your money when you buy. Anyone who pays market value for metal has already probably lost money." Maybe this, rightly or wrongly, is why I'll never be a bullion trader.
posted by mrmojoflying at 11:31 AM on December 29, 2008 [2 favorites has favorites]

@Kwantzar: Rhodium (like platinum, used primarily in autocatalysts but unlike platinum not a very liquid market) hasn't moved a whit, I suspect speculation (rather than industrial demand) is driving the price.

The market on Rhodium is also cornered by two particular countries: South Africa and Russia, the latter of which keeps its production and supply numbers held rather closely to the chest, therefore maintaining an ability to manipulate the market at its whim. Couple that with the fact that only about 20-25 tons are mined each year, and you have one hell of a volatile market.
posted by vanadium at 12:20 PM on December 29, 2008

except that none of those cultures exist in the modern world with a modern economy

...and hence we don't use gold as a currency any more. I think we're still on the same page.
posted by odinsdream at 12:30 PM on December 29, 2008

In Philip K. Dick's The Three Stigmata of Palmer Eldritch, in spite of the much-talked-about references to psychedelia, consumerism, escapism, colonial markets, and the idea of an anti-Eucharist that pollutes instead of purifies, the thing that struck me is that in the book's particular future, we'd started using truffle skins as money because, for whatever reason, they were the only thing that the manufacturing robots weren't able to counterfeit.

Also, Google Ron Paul! Ron Paul! Say it loud and there's music playing! Ron Paul. Say it soft and it's almost like praying.
posted by infinitywaltz at 3:16 PM on December 29, 2008

I'm having trouble with this

Why? If the proposition is that gold is somehow "worth" something intrinsically because of the labor it takes to get it out of the ground, then how is that labor productive of value? You're doing the labor just to be able to represent it (leaving aside the actual industrial uses of gold, or even the aesthetic ones).

And yes, my argument is that people store value in gold because it's shiny. Absolutely. Sometimes a simple argument is the true one.

As for the bullshit about lettuce or garlic vs. gold, the point is utterly moot. Of course the gold will buy you more than the lettuce, or win you more hearts than garlic - BECAUSE we have agreed to treat gold as "inherently valuable."

That different cultures have chosen gold as a store of value is also completely, utterly irrelevant to my arguments here. So what? That is largely an artifact diffusion and colonialism. Many Melanesian cultures use sea shells. Again, so what?

You can't eat the stuff. You can't make a house out of it. You can't wear it for protection against cold weather. It's a symbol of value, not a store of value in itself. It only works as a symbol as long as everyone agrees it's valuable.
posted by fourcheesemac at 4:04 PM on December 29, 2008 [1 favorite has favorites]

Or put it another way: it takes a great deal of labor to obtain many scarce commodities, up to and including moon rocks. Or petrified dogshit.
posted by fourcheesemac at 4:06 PM on December 29, 2008

So basically you're saying that it's solely the shiny qualities of gold that make lots of people want to use it as a value store, and not any of its slightly more relevant qualities? Not that the shiny doesn't play a role, but still.
posted by bonaldi at 4:28 PM on December 29, 2008

If we went a gold standard, wouldn't that lead to an inefficient allocation of labor as people started investing more and more time and money into mining gold, an essentially non-useful enterprise?

If one country went to a gold standard and the rest of the world didn't, wouldn't all the countries NOT wasting resources mining a worthless metal have an economic advantage?
posted by empath at 5:07 PM on December 29, 2008

Let's say the US went to a gold standard tomorrow, and the rest of the world didn't. The first impact would be that everybody in the US would go on the gold buying spree. All the other countries in the world are sitting on huge stockpiles of gold. With the fiat backed dollar now worthless, they'd only accept real assets for gold, so what would we exchang for it? Debt? Real estate? Stocks?

We'd mortgage our future for a mountain of shiny metal. Am I wrong about this?
posted by empath at 5:13 PM on December 29, 2008

Why? If the proposition is that gold is somehow "worth" something intrinsically because of the labor it takes to get it out of the ground, then how is that labor productive of value? You're doing the labor just to be able to represent it (leaving aside the actual industrial uses of gold, or even the aesthetic ones).

I don't understand how there would be huge economic gains from using a commodity with productive value (say oil) as the currency, rather than gold. At any given time, you would have to maintain a large stock of oil to satisfy transaction needs of the economy. This oil could not be put to productive use immediately. Just as the same bits of gold were used for centuries as currency, the same oil could be used as currency forever, never being put to "productive" use. So while I see there are certainly some benefits to having a currency that doubles as a production input, I don't see these benefits as being particularly large.

All this is ignoring the issue of how costly it is to produce the commodity versus the cost of producing gold. Also, if the currency commodity has productive use it will be more difficult to build up a large stock. This means that the producers of the commodity will have more control over it's scarcity, which could be a bad thing.
posted by thrako at 5:42 PM on December 29, 2008

Let's say the US went to a gold standard tomorrow, and the rest of the world didn't. The first impact would be that everybody in the US would go on the gold buying spree.

When the US was on the gold standard, the price of gold was fixed. It was $20.67 for a hundred years. FDR confiscated private gold, made it illegal to own privately and raised the price, so as to prevent a run on gold or possible currency substitute, and simultaneously inflate the dollar, making our debts considerably less expensive and making US exports more attractive. I think something similar would have to happen today. It wouldn't make the gold bugs happy, though.
posted by krinklyfig at 6:16 PM on December 29, 2008

I don't understand how there would be huge economic gains from using a commodity with productive value (say oil) as the currency, rather than gold.

That's more or less what's been happening since the world started trading oil in US dollars. That is changing, however.
posted by krinklyfig at 6:18 PM on December 29, 2008

simultaneously inflate the dollar

Should have been, "cause inflation by devaluing the dollar" ...
posted by krinklyfig at 6:20 PM on December 29, 2008

i think i mentioned it around here before, but here's my favorite description of money:

The idea of money as a source of social memory was also crucial for John Locke who figures prominently in our story as the philosopher who inaugurated the modern age of democratic revolutions. Locke was obsessed with money's role both in establishing a progressive social order and in subverting it as its criminal antithesis. Indeed he believed that money launched humanity from the state of nature onto the road to civil government. As long as men’s possessions were limited to perishable products, the scope for property was restricted. Money, by offering a durable store of value convertible against all useful things, unleashed the potential for property accumulation and for the intergenerational transmission of inequality. For Locke then, money was indispensable to that development of cultural memory on which civilisation depends.

this is the idea of money as 'credit' to an individual (or other 'legal entity') from society for doing or providing _whatever_ for the community, which becomes currency if this 'memory' is transferable (fungible) to others and somehow durable (storable across time)*

the major fallacy (at least in the 'modern' era) i think is that money is ever scarce ("To be short of money when there's work to get done is like not having enough inches to build a house") esp re: misconceptions about "overcapacity"** -- like capacity can be _artificially_ scarce if people's conception of money is limited to gold or gov't-backed currency; people can _always_ create their own currencies if they can only agree on how it'll all be coordinated, i.e. thru the 'financial system'

for a rundown of some alternative currencies see 'The future of money: private complementary currencies' [btw 'Taiwan government presents consumption vouchers' & 'bernanke bucks' (proposed)]

also fwiw if anyone's interested in variable pricing and shadow (accounting) prices and efficiency google's (now) chief economist provided an early entry into the development of network or information economics (that exhibit low or no marginal costs and increasing returns to scale), while a couple of nobel economists coming from opposing ideologies developed linear programming methods for central planning and intra-firm 'transfer' pricing to calculate optimal resource allocation (under constraints); these techniques were later used for advanced logistics and supply chain management (and were first used during WWII*** and the berlin airlift)

---
* historically 'money' has had three functions: 1) store of value 2) means of exchange and 3) unit of account; i don't see nowadays why there necessarily has to be a nationally prescribed (fiat) standard 'unit' anymore -- these functions can be separated out (or 'outsourced') to whatever works best nationally derived or otherwise -- like gold or TIPS maybe for (1) local currencies for (2) and say GAAP or whatever somesuch that's widely recognised as 'best practise' for (3) or like any combination thereof along a triaxial continuum if you can imagine... which would sorta as a corollary follow on from the devolution of the nation state where the 'right of kings' -- 1) monopoly on violence 2) expropriation/taxation and 3) minting currency/seigniorage -- might also be eventually 'modularised'

** a fashionable topic du jour, summers, obama & co. are advocating private employment -- "more than 80 percent of these 3 million jobs will be in the private sector" -- which is mankiw's labour tax cut multiplier (and lindsey's) but it's not 'either-or' (to be cliched) it's 'both-and'; esp when there's a free lunch to be had, re: coordination problems amidst imperfect information, i.e. the "social bribery fund" needs to be topped off to keep from devolving into, using wright's game theory terminology, dark age zero-sum-ness

*** for example, it was determined that the allies could better degrade the axis war machine by buying an X amount of tungsten (used to harden steel) from neutral spain & portugal and dumping it in the ocean (the allies had plenty on the home front), than say using the money to build more tanks and planes -- this was literally economic warfare; under certain assumptions, linear programming could be used to figure out what 'X' might be
posted by kliuless at 8:45 PM on December 29, 2008 [4 favorites has favorites]

Gold is money because people in general are willing to treat it as such,

Kind of like paper with pictures on it.

Gold is less useful and considerably more common than silver.

But gold will still have that value, regardless of how far things tumble.

Go back to the 19th century with a chunk of aluminium, the babes will be casting aside their gold. Bring pre-European Inca gold and watch them shrug.

and not any of its slightly more relevant qualities?

No, he's saying the only more relevant quality is the consensual hallucination that gold is more valuable than, say, silver (remember: rarer and more useful), and that the idea that gold is therefore an inherantly superior medium of value to any other substance represents fairly magical thinking.

If we went a gold standard, wouldn't that lead to an inefficient allocation of labor as people started investing more and more time and money into mining gold, an essentially non-useful enterprise?

Perhaps. I actually think the most interesting side effect of going to a gold-based currency would be that national wealth would be a function of mineral stockpiles, and there would literally be a fixed amount of wealth to apportion - both internationally and domestically. While I think this has some benefits (I think one of the weaknesses of modern economic thinking is that it's often too quick to dismiss the notion of finite resources as a non-problem), it would radically alter our economics in many, many ways. "Economics is not a zero sum game" would be a literally absurd claim.

Likewise, a country like Israel - which is hugely rich in technology (check out how many of Intel's successful CPUs were designed there, for example), but poor in many resources - could be poorer than many current third world countries (until they were invaded...). If you want to see how that might play out, consider whether Spain was a long-term net winner or loser as a result of basing their economic growth on invasion, genocide, and asset seizure in South America.
posted by rodgerd at 1:02 AM on December 30, 2008 [1 favorite has favorites]

Good grief. I go to sleep and this thread goes even further off the deep end.

NB. Nice comment kliuless. Worthy of an FP actually.
posted by pharm at 1:09 AM on December 30, 2008

Gold is less useful and considerably more common than silver... No, he's saying the only more relevant quality is the consensual hallucination that gold is more valuable than, say, silver (remember: rarer and more useful), and that the idea that gold is therefore an inherantly superior medium of value to any other substance represents fairly magical thinking.

Wha? Am I missing something?
posted by Kwantsar at 5:10 AM on December 30, 2008