Why Goldfinger’s plan wouldn’t have worked
In Goldfinger, arguably my favourite Bond film and one of the few which is recognised as being a better film than book, the titular villain Auric Goldfinger has a plan to enrich himself by irradiating the gold held in Fort Knox, making it worthless an hence increasing the value of his own stock. So far, so plausible (at least, within the context a Bond film).
The logic seems pretty straightforward, reduce the supply of the commodity and it’s price will go up. However, Goldfinger would have found himself sorely disappointed at what actually would have happened. First, the gold held in Fort Knox and other large vaults such as the New York Federal Reserve and the Bank of England is likely not marginal gold being supplied in the market. As David Hume once observed (in a slightly different context but the point remains the same)
If the coin be locked up in chests, it is the same thing with regard to prices, as if it were annihilated
Now, you can make a case that since this was 1964 and the Bretton Woods currency system prevailed, which mandated dollar convertibility of gold (essentially, the US Federal Reserve would give you an ounce of gold for $35 if you so wished). So one could make the case that this would reduce the credibility of the government’s commitment to gold/dollar convertibility, and that this credibility was important to the value of the dollar, you would therefore increase the value of gold relative to the dollar (i.e. the price of gold increases). Even granting this assumption, when gold ‘changes hands’ that doesn’t mean that the gold actually has to go anywhere. Gold is by-and-large a fairly useless commodity, and the market for physical gold is very small. Much of the gold in Fort Knox, the NY Fed and the BoE isn’t owned by the US and UK governments, but by central banks all over the world. Since they aren’t going to be turning it into jewellery or anything, they are pretty indifferent to where it is kept. Just because gold gets sold overseas doesn’t mean that it actually has to go anywhere, it just nominally changes hands. If I was buying gold as an investment, I’d probably want it kept in one of those three vaults. So even if the US ended up being forced to sell gold after it was irradiated, it really wouldn’t be a problem if no living thing could go near it for 56 years. I mean, you can’t get safer than that!
To get the intuition about this, imagine that each share of Microsoft was a physical piece of paper stored in a filing cabinet in Fort Knox. Goldfinger irradiates the shares. Are they now worthless? Of course not, because your legal claim to ownership as a shareholder is irrelevant to your ability to physically hold the piece of paper. Microsoft would keep paying dividends as normal, the shares can be traded as normal, and everything would be as it was before. It’s exactly the same with gold – the value of gold doesn’t depend on your ability to actually access the physical bar itself*.
At this point, one might be inclined to ask… so, what exactly is the value of gold? We go to great efforts to get it out the ground, and then put back into the ground and guard it at great expense. It does give you any yield like a share or a bond. It doesn’t do anything but sit there and gather dust**. My own view is that the value of gold is minimal, and that what we are seeing is a six thousand year old bubble.
That doesn’t mean I’d be willing to short it, though. The market has remained irrational far longer than I’ll remain alive, let alone solvent.
* Once might argue that the ability to have access to the gold is important in the case of hyperinflation. However, in such a circumstance the government is probably pretty likely to nationalise all the gold. If you’re buying gold for the store of value in case of hyperinflation and financial crisis… congratulations, you’re a sucker.
**Probably not, actually. There’s probably some horrendously and needlessly expensive system for preventing the dust from accumulating. Sigh.