[phil_20686]

 hrothgar, on 2011-August-08, 07:05, said:

Here's one amusing possibility:

The US has about 400 billion in gold in Fort Knox.
We could sell this off and use it for short term stimulus programs without impacting the long term debt....

Is that the price it was bought at, or at current market prices?

according to IMF, The US government holds about 8100 metric tonnes ATM gold is about $55,000 per kilo. So that is about 450 bn dollars at current prices.

However, the US regional reserve banks seem to hold at least that much. According to wikipedia the New York federal reserve alone holds 7000 metric tonnes of gold. Presumeably the other regional banks will also have some reserves. Apparently they are worth $11bn at the statutory reserve price, but that is only $42 per ounce? That would make it worth about $440bn at market prices.

[hrothgar]

 phil_20686, on 2011-August-08, 07:35, said:

Is that the price it was bought at, or at current market prices?

Current market value (as of three monthes ago).
Its definitely up since then.

At the same time, it would be necessary to trickle this out onto the market and even so, this would probably depress prices.

I was very surprised to hear an estimate that all of the gold ever mined would (probably) fit into three Olympic sized swimming pools. Another estimation I heard was a cube that was (roughly) 67 feet on a side.

[phil_20686]

 hrothgar, on 2011-August-08, 07:47, said:

Current market value (as of three monthes ago).
Its definitely up since then.

At the same time, it would be necessary to trickle this out onto the market and even so, this would probably depress prices.

I was very surprised to hear an estimate that all of the gold ever mined would (probably) fit into three Olympic sized swimming pools. Another estimation I heard was a cube that was (roughly) 67 feet on a side.

All the gold ever mined is about 165000 tonnes. Gold is 22.x times as keavy as water, so each m cubed is 22 tonnes. So it would fit into a cube 19.6 meters. which is pretty close to 67 feet.

EDIT: seems that my memory failed me, gold is only 19.3 the density of water. 22 is iridium and osminum, the two density elements when in their pure form. That does not change the estimates above by much.

[phil_20686]

 hrothgar, on 2011-August-08, 07:47, said:

Current market value (as of three monthes ago).
Its definitely up since then.

At the same time, it would be necessary to trickle this out onto the market and even so, this would probably depress prices.

I was very surprised to hear an estimate that all of the gold ever mined would (probably) fit into three Olympic sized swimming pools. Another estimation I heard was a cube that was (roughly) 67 feet on a side.

I have always wondered why governments do not use gold as a store of value over the economic cycle, given that demand for it generally goes up during a recession and down during a boom. Seems at least as attractive as government debt. Perhaps governments are just too big compared to the market in gold. If I were the Uk government I would definitely start selling a bit at current market prices.

[hrothgar]

 phil_20686, on 2011-August-08, 08:02, said:

I have always wondered why governments do not use gold as a store of value over the economic cycle, given that demand for it generally goes up during a recession and down during a boom. Seems at least as attractive as government debt. Perhaps governments are just too big compared to the market in gold. If I were the Uk government I would definitely start selling a bit at current market prices.

Gold prices are up 10 fold over the past decade.
Sounds like a good time to rebalance yea old portfolio...

[kenberg]

Let's see if I have this right. Fort Knox has about 8,000 tonnes, worth about $450 billion. All the gold ever mined comes to around 165,000 tonnes. That's maybe $9.5 trillion (assuming that 8,000 tonnes is worth $450 billion). So our current national debt is considerably in excess of the value of all the gold that has ever been mined?

I doubt this line of thought leads anywhere, but it has a certain shock value.

[phil_20686]

A bit off topic hrothgar, but what is the stock market doing?

I cannot understand it. Its completely bizarre. All my usual rules of thumb for stocks (basically based on price to earnings ratios) indicate this is a market to buy in. However, the market is still falling. It must be pricing in the risk of a another deep recession, and yet companies keep posting above expectation profits. Also, where are investors going if not into equity. Low interest rates, and moderate inflation in the eurozone make cash unattractive. Bonds are becoming increasingly unattractive. All this suggest that one should be buying equity. However, the stock market is still falling.

[phil_20686]

 kenberg, on 2011-August-08, 08:11, said:

Let's see if I have this right. Fort Knox has about 8,000 tonnes, worth about $450 billion. All the gold ever mined comes to around 165,000 tonnes. That's maybe $9.5 trillion (assuming that 8,000 tonnes is worth $450 billion). So our current national debt is considerably in excess of the value of all the gold that has ever been mined?

I doubt this line of thought leads anywhere, but it has a certain shock value.

I think only about 5000 tonnes of it is in fort knox. Not sure where the other 3000 tonnes are, but there we go.

[Zelandakh]

 phil_20686, on 2011-August-08, 08:02, said:

If I were the Uk government I would definitely start selling a bit at current market prices.

Unfortunately Gordon Brown decided to sell off almost all of the UK gold reserves when the gold price was almost at its lowest. As you mention they might be quite useful just about now...

[phil_20686]

 Zelandakh, on 2011-August-08, 08:31, said:

Unfortunately Gordon Brown decided to sell off almost all of the UK gold reserves when the gold price was almost at its lowest. As you mention they might be quite useful just about now...

not in any way letting GB off the hook, but if by almost all, you mean "about half" then I agree with you.

The UK has hardly any gold by the standards of industrialised countries, even before GB sold off what was left. There is only about 300 tonnes left in the BoE vault.

There still seems a contradiction between having high debt and holding gold though. I would imagine it makes more long term sense to sell off the gold to avoid taking on debt, particularly at the moment. Of course, if every government started selling off gold that would be a bad thing, but Italy has the second largest gold holdings in europe, and selling a bit of that to avoid paying too high an interest rate on its debt seems like a good way to buy time. Italy could sell its gold to CHina or the UK or other stronger EU economies. 100bn in cash would go a long way to solving italy's debt problems.

[hrothgar]

 phil_20686, on 2011-August-08, 08:26, said:

A bit off topic hrothgar, but what is the stock market doing?

I cannot understand it. Its completely bizarre. All my usual rules of thumb for stocks (basically based on price to earnings ratios) indicate this is a market to buy in. However, the market is still falling. It must be pricing in the risk of a another deep recession, and yet companies keep posting above expectation profits. Also, where are investors going if not into equity. Low interest rates, and moderate inflation in the eurozone make cash unattractive. Bonds are becoming increasingly unattractive. All this suggest that one should be buying equity. However, the stock market is still falling.

I don't have a damn clue what's going on...

I follow a pretty boring investment strategy.
I try to create a broad diversified portfolio while minimizing thrash, taxable events, and brokerage fees.

For anyone interested in the details, I use the portfolio optimization algorithm in the MathWorks Financial Toolbox to create a portfolio of ~10 ETFs
I normally end up with a reasonable split between equities and commodities

I balance the money in my primary accounts once a year or so
I balance the funds in my Roth IRA's more frequently (usually about three times a year)

This gives me a pretty good return and is normally pretty low stress.

I've been debating whether to rebalance (especially since i have some money sitting on the side).
However, I don't have a good feel for whats going on.

For the moment, I am sitting back and watching.

[hrothgar]

 phil_20686, on 2011-August-08, 08:31, said:

I think only about 5000 tonnes of it is in fort knox. Not sure where the other 3000 tonnes are, but there we go.

New York Fed

[phil_20686]

 hrothgar, on 2011-August-08, 08:40, said:

New York Fed

The new york fed has about 7000 tonnes, but it apparently belongs to the New York Fed, rather than the US government. The american federal reserve is a bit wierd, but apparently you have 12 regional central banks who have gold reserves of their own, but are not directly controlled by the US treasury department.

Thats why the gold in Fort Knox + The Gold in New york Fed > The US Gold bullion as measured by the IMF. I presume the other 11 district banks have their own holdings too. Perhaps some of the Gold int he the New York Fed belongs to the US treasury, but not all of it does.

[y66]

 phil_20686, on 2011-August-08, 08:26, said:

A bit off topic hrothgar, but what is the stock market doing?

I cannot understand it. Its completely bizarre. All my usual rules of thumb for stocks (basically based on price to earnings ratios) indicate this is a market to buy in. However, the market is still falling. It must be pricing in the risk of a another deep recession, and yet companies keep posting above expectation profits. Also, where are investors going if not into equity. Low interest rates, and moderate inflation in the eurozone make cash unattractive. Bonds are becoming increasingly unattractive. All this suggest that one should be buying equity. However, the stock market is still falling.

Pricing in risk of next recession? That sounds right to me. Goldman Sachs Via Krugman:

Quote

We have lowered our growth forecast further and now expect real GDP to increase just 2%-2½% (annualized) through the end of 2012. Since this pace is slightly below the US economy’s potential, we now expect the unemployment rate to be at 9¼% by the end of 2012, slightly above the current level.

We now see a one-in-three risk of renewed recession, for three main reasons. First, a worsening of the European financial crisis would hurt the economic outlook globally. Second, our forecast assumes that the payroll tax cut is extended for another year; if that failed to happen the fiscal drag in early 2012 would rise significantly. Third, the unemployment rate has increased in recent months, and such increases have historically had a tendency to feed on themselves.

Our inflation forecasts have not changed much, but our conviction has increased that the large—and now growing—output gap will result in significant renewed disinflation. Nominal wages are growing at a 2% rate, unit labor costs are roughly flat, and the temporary inflation impulse from higher commodity prices and the supply chain disruptions in the auto sector is waning. We expect the year-on-year rate of core inflation to fall from a peak of around 2% in late 2011 to 1¼% in late 2012.

[luke warm]

 hrothgar, on 2011-August-08, 06:22, said:

It's almost pathetic to watch you try to spin this so the Democrats share the blame.

it's almost pathetic, but not surprising, that you're about the only one who thinks the dems *don't* share in the blame

[hrothgar]

 luke warm, on 2011-August-08, 13:26, said:

it's almost pathetic, but not surprising, that you're about the only one who thinks the dems *don't* share in the blame

Raise your hands if you think that the Republican's deserve any significant portion of blame for the downgrade...

(Just to make sure, if folks have a strong belief that the Democrats and Republicans are equally blame for the cluster *****, that would also be interesting)

[luke warm]

 hrothgar, on 2011-August-08, 13:30, said:

Raise your hands if you think that the Republican's deserve any significant portion of blame for the downgrade...

(Just to make sure, if folks have a strong belief that the Democrats and Republicans are equally blame for the cluster *****, that would also be interesting)

*raising hand* ... and i never said they shared equal blame

[PassedOut]

 luke warm, on 2011-August-08, 13:26, said:

it's almost pathetic, but not surprising, that you're about the only one who thinks the dems *don't* share in the blame

I certainly think that the democrats share the blame for the debt (many democrats voted for the Bush tax cuts, the war in Iraq, and the unfunded Bush medicare entitlement), although there is no doubt that the republicans are primarily responsible.

But the tea party republicans were solely responsible for the debt ceiling crisis that lead to the downgrade. The US is in a better fiscal position than countries with an AAA rating (France, for example) but no one doubts that the French will pay their creditors. The tea party morons created that doubt about the US.

I'm still curious how you got the idea that the Ryan plan would cut $4 trillion from the deficit. Were you thinking of the $4 trillion deficit reduction plan that Obama and Boehner were working on -- that the tea party torpedoed?

[mike777]

BTW what S&P said was that in their opinion USA Treasuries are riskier and have a bit higher chance of default.


At this point the Treasury markets disagree and prices are up as people are buying.

[hrothgar]

 mike777, on 2011-August-08, 13:59, said:

BTW what S&P said was that in their opinion USA Treasuries are riskier and have a bit higher chance of default.
At this point the markets disagree and prices are up as people are buying.

I think that you'd be hard pressed to argue any kind of casual relationship given the number of other things that have sifted over the last week or so... (say the stock market or the European debt crisis)