Dragons, dungeons, and irrationality

By | November 2, 2012
What good is gold? No, seriously: If you were in an industry dealing with electrical technology and have an actual use for gold-plated electrodes, I can understand why gold is valuable. But if you are a financial institution, what good is physical gold?

Just like with paper money, gold isn't physically of significance. It is virtually of significance. If the computer says you have 1000 bars of gold, you have that much value, regardless of whether you have ever seen that gold, and regardless of whether it exists.

So why do banks have gold? They really only care about trading virtual gold. Why do people still prize gold? I think the real reason is that we have a lot of dragons out there. The kind of mythological dragons who hoard gold and princesses for no apparant reason other than to be a pig, and the kind who kill any valiant heroes who try to save them (until one finally succeeds).

But our dragons are different than the mythological ones. They store their gold in dungeons, and you can't get to see if anything is there at all until having completed a mafia-filled game of D&D. And then I start to wonder: when is our Knight in White coming?

/via +Gurudatta Raut 

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17 thoughts on “Dragons, dungeons, and irrationality

  1. Sy Bernot

    We are already willing to accept a piece of paper as a token of gold and a plastic card as a promise of payment. Today's money is all ones and zeros and the only thing that makes any of it worth anything is us. We assign worth to these things because we are confident that it all works out and there is enough gold to cover the paper and enough paper to cover the plastic. Given the things we already have discovered about companies such as AIG, HSBC and Deutsche Bank how confident can we really be in our system? Banks make money by taking on risk and insurance companies make money by reassigning risk. If you get enough of that in flight at one time eventually you end up with a perceived worth that is much higher than reality. The financial institutions like it this way, It's not just that you can store a lot more ones and zeros on a thumb drive than all the gold in the world and you don't need Fort Knox to do it, a system of multi-layered abstraction lends itself to being manipulated. When the penny drops, that Krugerrand will be priceless.  

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  2. Francois Demers

    This comment by (get it?) Psybernaut  +Sy Bernot: " the reason financial institutions are interested in physical gold is money." makes me wonder if the Krugerrand has any real physical future.

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  3. Sy Bernot

    I almost forgot, the reason financial institutions are interested in physical gold is money. Bullion banks charge storage fees for physical gold and if the gold is unallocated for a trade the bank can swap the gold for money (this is sometimes done to get around solvency laws). The real scam here is the bank will continue to charge their customer the storage fee for gold that is essentially an IOU. If the customer wants to allocate or withdraw their gold they just swap someone else's gold, it's a big paper chase. If there were a run on bullion I suspect there would be many financial institutions caught with their pants down. There is a lot of smoke and mirrors behind the worlds financial institutions.  

     

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  4. Karsten Wegmeyer

    it's quite simple! People just love it over thousands of years. There is a  "wanna have" feeling when people do see the warm glooming and sparkling gold. And gold is limited, it is an "alien material" all the gold on earth has been brought to us by dropping comets etc.! So there is a market that lasts really long and there is a real limitation, that's what keeps the monetary value. There you've got your answer! 

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  5. Sy Bernot

    All the gold on earth probably came from meteorites, the meteorites at some point originated from exploding stars. Of course that is true of pretty much every heavy element and there are many that are more rare on earth than gold.  So why do we value it? Why did we at one time value salt or spice as the monetary anchor of the day. Because someone told us to. Something is worth  exactly what someone is willing to pay for it and not one bit more. People want gold so it has worth. If you're interested in money and worth have a look at this: The Ascent of Money: A Financial History of The World by Niall Ferguson Epsd. 1-5 (Full Documentary)
     

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  6. Hermann Bock

    Sorry +Gurudatta Raut but I don't think it is just the banks that value gold, people definitely do and have done it for thousands of years. Just read old literature, I mean, really old; gold is always highly regarded, be it the Bible, Quran or even the sumerian scrolls, all of them have stories where gold is held in high esteem.

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  7. Robert Mahon

    There's a fixed amount of Gold, it's value shouldn't fluctuate as much as other items (well, within reason as long as people aren't being silly causing a bubble). It's moveable to another person.  It's weight/purity can be measured.  It doesn't decay.    As inanimate objects, it's a great 'base' substance to build other money systems on top of.

    What other items match Gold's known attributes?

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  8. Francois Demers

    Game to play in restaurants with guest: side by side, the menu and paper currency, ask "pick one".
    Most pick the cheapest to make and least likely to guide their tongue epithelium anywhere. After, I leave them with the check: they have the money (true story).

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  9. Francois Demers

    +Hermann Bock gold or platinum, the jewelry and electricity people love you both for the same reasons: pretty, good.
    +Sophie Wrobel you came this close, this close I mean it, to a message from Stupor Duck. The only reason you did not get it is SD has someone else in his tiny mind.

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  10. Hermann Bock

    I think gold has "traditional" intrinsic stored value since thousands of years, and people recognize that. Believe me, gold has more intrinsic value than dolars or euros… at least you can make durable jewels out of it and make yourself look pretty.

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