Wikipedia:Reference desk/Archives/Humanities/2023 March 12

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March 12

Economics: how does the gold industry work?

So I been watching some of this Rich Dad Poor Dad channel, from a Japanese video blogger. He goes on about how when the economy is bad, he can go to some place to sell gold, which he bought decades ago. My question is, do you sell gold to the same place you bought it from? Or do you buy gold from A, and years later sell it to B? My 2nd question is, what about the ruby/sapphire/emerald industry, can something like that be exchanged the same way? The only thing is, the electronics industry has more use for gold and copper than it does for ruby/sapphire/emerald, unless those metals can be broken down into usable metals. Thanks. 67.165.185.178 (talk) 14:12, 12 March 2023 (UTC).

I don't know the answer to the first question, which seems the most interesting one. I assume that yes, you sell the gold back to A, but this raises the question of why A is willing to buy it from you at such a time. So far as gemstones are concerned, they're listed in our article Store of value, but without any discussion. I note that ruby and sapphire are both forms of corundum. If it has some amount of chromium in, it's called ruby, whereas sapphire is a large group of other varieties with trace amounts of various other metals. I don't think any gemstones function as metal ore, because they're mainly aluminum, and the main source of that is bauxite and it's very inexpensive. Sapphire does have some connection with electronics in the form of sapphire glass, used on smartphones, and I see it's also used as a substrate for silicon semiconductors, and in lasers: but this is all synthetic sapphire, and not made from gemstones. But, per the concept of a store of value, what matters here is rarity, not usefulness. Hence paintings, for example, if they are somehow special and distinctive, function similarly to gold bars, and may be stored safely away (to the dismay of the more principled type of artist).  Card Zero  (talk) 14:44, 12 March 2023 (UTC)

The same places buy gold as sell it. There is a Bid–ask spread which is how they turn a profit. And at least in the US, if you keep something for years and then sell it for more than you paid for it, you are supposed to pay capital gains tax on the difference. 2601:648:8200:990:0:0:0:B68B (talk) 17:39, 12 March 2023 (UTC)

I see no reason for the seller to return to the place the gold was originally bought from. The place may have gone out of business. Or the seller may have inherited the gold, not even knowing where it was bought. They can just go to any place willing to buy it for an acceptable price. If one splits a piece of gold in two, the two pieces together are just as valuable as the original piece; given the level of purity, the value is by weight. If someone splits a valuable ruby in two, they are destroying a huge value. Unlike precious metals as a raw material, gemstones are typically not fungible.  --Lambiam 20:50, 12 March 2023 (UTC)

There is no benefit to selling gold to the same dealer that you bought gold from, except for a possible convenience factor, if the dealer's office is just down the street for example. Any reputable gold dealer will offer essentially the same price, with a tiny bid-ask spread. The biggest hassle is the costs of secure storage and transportation. Cullen328 (talk) 01:35, 13 March 2023 (UTC)

Even if it's 20 years later? 67.165.185.178 (talk) 01:45, 13 March 2023 (UTC).

I don't quite understand what you're getting at with the 20 years thing. If you're comparing 20 years to a short time e.g. 20 weeks then 20 years later means there's even less reason why you would want to sell to the same dealer, not more. The dealer is significan more likely to no longer exist, and even if they do, they might be in a different location. For the convince reason perhaps you will sell to someone in the same location but then this might not be the same dealer. Of course there could be no dealers in the same location anymore, it could have substantially changed since then in 20 years. And maybe your location or at least the gold's has changed since then. And 20 years later does imply a bigger hassle in terms of secure storage over all that time. Transportation is more complicated however at the very least things will likely have changed somewhat over those 20 years. Nil Einne (talk) 07:54, 13 March 2023 (UTC)

Gold 1oz coins (the usual retail unit) will typically be sold to a gold dealer, possibly a bank. Selling to the same place you purchased it from might be a bit easier, as the buyer will have to verify the coin’s authenticity, and weight. Jewelers might buy non-coin gold, to melt down for rings, etc; coins command a premium, so they are not likely to be melted. Jewelers also buy fine gems, since they are among the few who can verify authenticity. DOR (ex-HK) (talk) 14:27, 13 March 2023 (UTC)

Gold dealers tend to be individual businesses, and not a franchise? Will companies like Pandora or Cartier buy them from people?

67.165.185.178 (talk) 15:07, 13 March 2023 (UTC).

Some gold dealers may be part of network, which might give them enough credibility to sell to Cartier. However, large users of gold for non-investment purposes are far more likely to contract with someone purchasing from or representing a mining company. There is just about zero prospect of an individual selling gold coins to a large jewelry conglomerate. DOR (ex-HK) (talk) 22:07, 14 March 2023 (UTC)

Gold as an investment may answer your doubts. --Error (talk) 15:58, 13 March 2023 (UTC)

FDIC insurance

Question inspired by Silicon Valley Bank collapse. FDIC insurces bank deposits up to $250K per account, but the amount is not really limited because if you have $N million, you can spread it out across multiple accounts of $250K each. It sounds to me like there are even apps or services that do that for you automatically. If this workaround is intentional on FDIC's part, why don't they drop the pretense and make the coverage unlimited? Or if it's a loophole, why don't they close it? And, in times when the bank is not collapsing, do yields on $250K bank deposits beat short-term treasures in practice? Thanks. 2601:648:8200:990:0:0:0:B68B (talk) 17:31, 12 March 2023 (UTC)

Say you have $100 million. How many banks would you need? It's impractical. And no, they don't pay much, which is why they've been losing deposits. The reason unlimited insurance isn't normally provided is because bank capital is supposed to cover that, but the last administration relaxed oversight of regional banks like SVC in 2018 under their lobbying. 68.174.155.22 (talk) 17:40, 12 March 2023 (UTC)

You only need one bank. You'd use 400 accounts in the same bank if I understand the story right. Silicon Valley Bank was popular in the tech sector because they had good computer integration among other things: you could have software juggle the accounts for you through an API. 2601:648:8200:990:0:0:0:B68B (talk) 18:15, 12 March 2023 (UTC)

You read wrong, or you read an unreliable source. See here for example. 68.174.155.22 (talk) 22:06, 12 March 2023 (UTC)

Thanks, that helps. 2601:648:8200:990:0:0:0:B68B (talk) 23:16, 12 March 2023 (UTC)

all of this is how FDIC should work. Instead, it has made everyone whole in the two collapses this weekend, rendering the question of whether there is an actual limit, since at this point anyone who loses on the next collapse can argue "arbitrary and capricious" if they are not made whole. Slywriter (talk) 00:21, 13 March 2023 (UTC)

In Europe, it was said after the 2008 crisis that while deposits are insure up to 100,000 EUR (generally), in case of the simultaneous crashes of more than (one?) big banks, the insurance fund is depleted and subsequent victims would depend on the political will of then-ruling authorities. --Error (talk) 16:04, 13 March 2023 (UTC)

Expecting a bailout as part of your investing strategy used to be called a Greenspan put. Dodd-Frank was supposed to stop it from working, but that failed. I find it hilarious that one of the biggest SVB depositors to get bailed out was a cryptocurrency fund. I wonder if I can line up a federal bailout if my upcoming weekend in Las Vegas doesn't go as planned, lol. 2601:648:8200:990:0:0:0:B68B (talk) 20:28, 13 March 2023 (UTC)

Held-to-maturity assets on balance sheets

Allowing HTM loans to be carried on the books without at least showing their fair market values as with HTM bonds on the consolidated balance sheets, instead allowing them to be listed in the notes, seems to be a recipe for disaster. Silicon Valley Bank was essentially insolvent except for this accounting sleight-of-hand; their unrealized losses were known to have exceeded total equity in H2 2022. Are there proposals to revamp this area of reporting? 68.174.155.22 (talk) 17:47, 12 March 2023 (UTC)

TIL, and I'm amazed that was allowed or at least was non-transparent enough that it fooled anybody. Yeah that sounds like a regulatory bug. I did see some articles from 2022 about shorting SVB. Also someone criticized them yesterday about not having any hedges against interest rate changes in place. 2601:648:8200:990:0:0:0:B68B (talk) 18:22, 12 March 2023 (UTC)

There is some discussion here and in adjacent posts. I don't understand much of it. 2601:648:8200:990:0:0:0:B68B (talk) 01:24, 13 March 2023 (UTC)

SVB's still-twitching carcass now appears to be getting sued over this, according to the CNBC chyron. 2601:648:8200:990:0:0:0:B68B (talk) 20:29, 13 March 2023 (UTC)