By Mark Frauenfelder at 10:56 am Mon, Dec 10, 2012
A fascinating visit to the Bank of England bullion vault, which stores $315 billion in gold. The narrator is kind of sad because he says gold is useful for many things and it's just sitting here.
$315 billion in gold.
And that’s quite a substantial amount of money.
The host’s name is Martyn Poliakoff. He is a professor at University of Nottingham in the UK. His group has put together an insanely brilliant set of videos showing the properties of different elements called, “The Periodic Table of Videos.” Check it out, you will not regret it. http://www.periodicvideos.com/
He’s not just a “narrator” he’s a scientist. He’s the host of a video series “A periodic table of Videos.”
His comment is that gold has “exciting chemistry: that’s what the video series is all about — the chemistry of various elements.
It just so happens that we value gold as something other than an element. ;)
Periodic Videos, always superb. If I could, I would change professions and become a chemist (or just get a job at the University of Nottingham).
It’s questionable whether there’s any gold in Fort Knox at this point. If Nixon or Reagan didn’t spend it, you gotta figure Bush or Obama would’ve. For the greater glory, of course!
Notwithstanding the conspiracy theory, most of the US gold is in the Manhattan depository.
“Fort Knox is for tourists!” —That one villain from the least-sucky Die Hard sequel
You don’t really ‘spend’ gold. It isn’t money. I think that was Itsumishi’s point, maybe. Instead it goes something like:
1. Buy gold
Well, not usually… but there are still exceptions.
That’s fascinating. I didn’t know anything like that existed. Is it still a ‘money’ though? That is, could there be a situation where those gold coins are worth marginally less than their weight in gold? I know it sounds like a dumb question – but like if you made smelting the coins illegal (like it is in the U.S.)?
As an enterprising kid with an eagle scout dad and a shoebox full of sand, I was so excited to make a killing on Pog ‘slammers’ (remember pogs?) made from smelted currency. But apparently that’s a no no.
For the krugerrand itself to be worth less than its gold value would take some truly peculiar circumstances. At a guess, you’d have to get a significant number of countries to criminalize the trade in krugerrands *and* the owners would have to believe that the situation is irreversible in the medium to long term.
Of course, that would be a very short-lived situation, as people melted their krugerrands and sold them for the straight gold value.
You mean like apartheid? A quick review of Wikipedia tells me there was an embargo on krugerrands in the 70’s/80’s on that basis. I’m really not pretending to know what I’m talking about – just trying to back up my ‘you don’t spend gold’ statement. Even when it’s money. Because ‘money’ has these external factors – like the criminalization of smelting – that might, conceivably make it worth less than the objective value of its materials. Whereas a brick of gold is just gold. You don’t ‘spend’ it, you ‘sell’ it.
Bette Midler caused a scandal in 1978 by demanding to be paid in Krugerrands for a foreign concert tour.
“You mean like apartheid?”
That satisfies the first condition, but does it satisfy the second? People might have kept the coins around expecting the ban to be lifted at some point. And since it was, they appear to have been right to do so. Nor was the ban universal. I’m going off the same wikipedia article here; Apratheid-era numismatics aren’t exactly my strong point.
The claim that one doesn’t “spend” gold depends on how you define spending. Clearly, gold can be exchanged for products or services. So can pretty much anything else, if you’re willing to accept the transactional overheads. There’s a reason no one tries to trade cucumbers for vacuums directly — you’d have to find someone who had vacuums and wanted cucumbers at the exact moment when you had cucumbers and needed a vacuum. Money, shared illusion that it is, minimizes that overhead, but gold comes pretty darned close to the same (unlike diamonds, for which there is essentially no secondary market, or platinum, which doesn’t have anywhere near the popularity of gold).
I think that gold/cash offset might be more substantial than you think. If someone tried to buy my house with gold bars, I probably WOULDN’T accept the offer, not because it wouldn’t be awesome, but because I would assume they were stolen, and that the feds were going to pop in and seize the bars any day. If enough people think that way, it’s going to devalue the gold. I mean, the mere existence of that stupid Cash 4 Gold nonsense means gold isn’t universally barter-able. I know these Cash 4 Gold things are probably extortive, but let’s assume for a moment that the actual loss in value with these things is the value of the middleman’s services – the transactional overhead. If this were the only way to sell gold (I know it’s not), gold would be worth substantially less than its ‘weight in gold.’ So maybe you can ‘spend’ gold, you just need to be a sovereign nation – and not just some guy – to realize that gold standard. And thank you so much for talking this through with me. It’s a delight that with just such a simple comment, I can get a beeline to someone who really knows their stuff. And great word, btw – I feel like I’ve been waiting my whole life to use the word ‘numismatic.’ I guess I’m just a little off my game, with the end of days and all. Wow these margins are not kind to re:re:re:re:responders. I wonder why?
” I would assume they were stolen, and that the feds were going to pop in and seize the bars any day.”
Would you be any less suspicious of someone who wanted to pay for your house in cash, legal tender though it is? The only reason you’re not worrying about someone handing you a cheque for your house is because someone else — the bank, the tax authorities, etc. — has done the due diligence, vetting the source of the money. Even then, with large purchases such as real estate there are precautions to be taken. There’s a reason why (in the US at least) title insurance is at the very least strongly recommended, if not outright required. All the things you criticize about gold as a medium of exchange apply to all other forms of currency in use today, whether they be physical or purely digital.
Look at why gold is no longer being used as currency, and why it was back in the day. Keep in mind that the reason we’re using any kind of universal medium of exchange at all is to minimize transactional overhead. If you had to trade your pumpkins for a loaf of bread, a ditch-digger’s three hours of labour, and a dozen logs of firewood, you’d have to find a ditch-digger, a baker, and a lumberjacks who all wanted pumpkins at that exact moment. Any kind of a token of exchange — paper money, gold, cowrie shells, no matter what — allowed us to introduce an arbitrary delay into the transaction.
So why gold? The main reason was its innate value: Governments were neither sufficiently interconnected, nor sufficiently reliable in their repayment of debts. Gold coins were guaranteed by virtue of being gold coins, not by any external agency. It was also hard to find, so you couldn’t randomly decide “I’m going to make myself a hundred gold coins.”
The reason gold is out of circulation today isn’t because paper money has some special quality gold lacks — it’s because paper money has *no inherent value.* This makes it a better fit for the purposes of universal exchange, but note I said “better.” Gold worked relatively well; it’s just that paper money works better.
Think about it: When gold was freely in circulation, it was a tempting target for counterfeiting, for shaving off of coin edges, for simply minting gold coins with the same faces but of lower weight… Ensuring that what you were getting was, in fact, worth its supposed value required significant skill and at the very least a scale of some precision. Once governments became sufficiently reliable the obvious first step in the fight against counterfeiting was to split the currency and the material goods that guaranteed its value.
As for the uncertainty over value, well… Look at the US. When gold prices fluctuate, a good portion of the time it’s not because demand for gold has suddenly dropped or a new deposit was discovered. It’s because gold is valuated in USD, and when investors start having doubts about the US’ ability to repay its debts… It’s not that gold increases in value; it’s the USD that drops. Welcome to the currency markets :)
Well I think that’s bringing us back nicely to the narrator’s stance, right? (And my snarky thing about neodymium below). Gold has taken on new and unique value in the last hundred years. Much like uranium. Or even – apropos of gold counterfeiting – tungsten. Gold is an important electronics manufacturing material. If its value is in its rarity, then stockpiling it is pulling a double-rarity-whammy on manufacturing, space exploration and science generally.
We’re talking about hydrogen-powered cars. Like the H in H20. As we find better and better uses for our surroundings, shouldn’t we err on the side of a currency that is valueless in and of itself, so as to not make its arbitrary material source artificially rare? I know you’re saying gold isn’t arbitrary, but consider the copper in American pennies. That’s a rare and useful mineral. And yet, if you took it out of the coin, I seriously doubt anyone would miss it. Or diamonds. How am I supposed to tiffany-cut this friggin diamond without a diamond?
I remember a pop evolutionary psychologist’s reading of diamond engagement rings going something like: diamonds don’t have a secondary market, and that’s exactly WHY they BUY you prestige/sex/trust/family. I guess, on the other hand, I realize that an immaterial currency opens the door to crashes and the whole arcane Goldman Sachs coven.
So, specifically, I’d love your thoughts on Bitcoin. Seems to meet both parameters, right? Ethereal AND rare – even predictably so.
Bitcoins annoy me for a purely utilitarian reason: Whenever I try to close or stop the miner client, it freezes my computer. Completely.
Now that I’ve gotten that out of my system, I must confess that I don’t know much about Bitcoins, so this is largely unfounded speculation. Hopefully someone finds it interesting.
Bitcoins seem to be doing quite well in disassociating the transaction from the individual. They’re not untraceable as such; they just sever the link between the account with the money and a specific individual.
The problem I foresee is that Bitcoins are (according to some articles at least) already being used extensively for criminal activity. This is the perfect excuse for governmental agencies to crack down on the whole thing. They could institute disclosure requirements and force much stricter documentation requirements on Bitcoin-to-other-currency exchanges. They could also outright ban the exchanges, much like they did with online poker sites.
The other problem is that Bitcoins aren’t particularly user-friendly right now. When you’re dealing with a decentralized currency, it’s your responsibility to secure your wallet from attack, and those attacks can get mighty sophisticated. We’ve already seen how social engineering attacks remain effective when dealing with our existing banking system. If there’s something Bitcoin offers that supports greater security, I’ve not heard of it.
One solution to that might be a Bitcoin bank: A respectable organization that handles the authentication. You prove to them that you’re really allowed to access your Bitcoin wallet, much like you would when accessing your regular bank account. Disclosure requirements will likely come into play here again, but if they’re already in place for the exchanges then this will likely be much less of a concern for people.
What fascinates me (and what I don’t really understand the implications of yet) is the ability of *anyone* to essentially print money. I guess it’s really not that different from any other business: You invest time (well, CPU cycles, but still), electricity, and possibly even capital for new equipment, and get a product in return. That product can be exchanged for “real-world” money, much the same way you’d exchange a cabbage you grew or a chair you built for money. The curious thing is that unlike software, the product isn’t easily replicable — they’ve created the digital equivalent of a physical good.
(and yes, I am just as annoyed as you are about the depth limit on replies)
No I was simply quoting (or paraphrasing) the Captain Obvious statement in the video.
If we just stockpiled all the world’s neodymium like this, you probably wouldn’t be reading this on a computer. Much less the Internet.
Watch, it will turn out gold deficiency in our diets has been causing us to do quaint things like ‘age’. Sorority girls with twinkly Goldschlager poo will rule the world.
Sorority girls with twinkly Goldschlager poo will rule the world.
Disturbingly specific image you’ve got there, chief.
It’s kind of a fantasy I’m going through these days.
I think I have that movie!
Look at all that foil-wrapped chocolate!
Trufax: some recent fake-gold-selling scams have involved goldplated bars of tungsten, which has almost the same atomic weight but is vastly cheaper.
For a sense of scale, tungsten is somewhere around USD20,000/t (though it’s hard to get an accurate figure as it’s not exchange-traded). Gold is currently trading at around USD1,700/oz, or 54.6 MILLION per tonne.
You mean density. The atomic weights aren’t that close (184 vs 197) but the density is (19.25 vs 19.32, give or take).
Just imagine the cavity search they put the poor guy through when he left.
Honestly, it seems they could just weigh him going in and out.
It’s not that simple. He could have lead inserts in his shoes which he substitutes with a suitably weighted piece of gold. Upon leaving he’d weigh the same. At the very least they’d have to strip him close to naked to be sure he wasn’t trying something like this. And the camera offers all sorts of possibilities of hiding things.
…while he hacksaws off a piece of the standard bullion bar to match the shape and weight of the lead insert? Otherwise, the standard gold bar is 400 troy ounces or 12.4Kg. Those would be hella heavy shoes. Ministry of Silly Walks, anyone?
I don’t get the idea that they were there unsupervised.
Just imagine the cavity search they put the poor guy through when he left.
“Hey, I had gold fillings in my cavities when I got here!”
He’s never seen that much of any element? Go outside and look down. Or up. Or any direction, really.
In its pure form, I assume.
Nitrogen would probably qualify, but when it’s gaseous, it’s pretty hard to see.
How about the sun?
Oh yeah. Big ball of mostly hydrogen.
Most of what you see are compounds, not isolated elements.
Any one element… all together.
I suppose if you were flying over the rainforest you’d be seeing quite a bit more carbon below you. But it wouldn’t be quite as interesting as if all the carbon were in pure-carbon objects, like 500 tons of diamonds would be.
It’s pretty easy to take a tour of the Federal Reserve Bank in Manhattan. Just go to their website and sign up. You don’t quite get into the vault with the gold…but if you poke your finger through the grating you can touch it. $400+ Billion worth of gold is pretty staggering to behold.
Interestingly, I asked the guide how often a deposit/withdrawal takes place. He told me they hadn’t had one in several years. So, it just sits there.
It’s amazing to me how haphazardly the bricks appear to be stacked. There’s a general pattern to how the layers are set up, but on every shelf it seems like there’s a couple bricks that are upside down or crooked. I’ve seen mail rooms that stacked things better.
I guess there’s no requirement that the storage be aesthetically pleasing, but one would think that a bank hosting such a stockpile would put effort into keeping things tidy, if only to keep appearances that they are fastidious and deserve the trust being given to them.
Since they’re from different countries’ refineries, there may be no international standard regarding which side the serial numbers etc. are stamped on, so they’re arranged for easy legibility. Just guessing.
Me too. If I had that much gold, first off, I’d keep them in my underground “lair” not some warehousey place. The lair would be lined with black velvet and have dramatic lighting to bounce off all the gold bars so they would shimmer. I’d have some turntables (maybe acrylic – just thinking out loud here) piled high with bars and bars and bars all piled up into pyramids, slowly rotating, like how they display jewelry only gigantic. There’d be some mood music playing – thinking some funk or rap or jazz – not that dead empty air. Of course, I’d keep the temperature very cool so I could wear my sable coat while examining my gold.
He’s quite right–that gold could be put to a much better use. I’m thinking a life-sized statue of me, nude, with one foot on the globe, holding Excalibur in one hand and Mjolnir in the other.
That’s ridiculous. While the gold statue of you is possible, and you could put Mjolnir in one of it’s hands, everyone knows that Excalibur is not real.
Each shelf has got a *ton* of gold.
Damn, those are some sturdy shelves.
It cannot be repeated enough how totally awesome http://www.periodicvideos.com/ are.
The mystery of what happened to Bob Ross’ hairdo upon his departure is now solved.
His hair would fit perfectly into that other awesome BB post of the day, the cauliflower explosions.
I liked the explanation of how much gold had EVER been mined- much less than I would have expected, actually. I also enjoyed the part where he was a little disappointed in what he would be worth if he was worth his weight in gold…
I think you mean £197,000,000,000 – it’s the Bank of England, and we’re not part of the USA yet!
Didn’t Gordon Brown swap it all for a Blue Peter badge or something a few years ago… http://en.wikipedia.org/wiki/Sale_of_UK_gold_reserves,_1999-2002
No – he just put it in a very large envelope marked “Cash 4 Gold”. In return, they sent him a post-dated cheque for £50, which later bounced.
All I could really think of is “wow, those are some really sturdy shelves”.
Related Mitchell and Webb:
this is a great video series if you haven’t watched it.
It’s interesting to imagine the kinds of scientific discoveries that aren’t being made because an important element like this is being sucked up into our money system. On the other end of the chart, Helium is being spent frivolously because it’s not valued *enough*. I can imagine that anthropogenic shortage biting us on the collective ass too.
I was kind of expecting more laser sentries… not utility shelves from Home Depot.
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