3 Minute Gold News – Josh Crumb – Gold: Money or Commodity – February 9, 2017

3 Minute Gold News

A Quick Read for Busy People

A synopsis of an interview with Josh Crumb, co-founder of Goldmoney, with Keith McCullough at Hedgeye TV.

Josh is the Chief Strategy Officer of Goldmoney, and former Goldman Sachs executive director – London Senior Metals Strategist in the Global Economics, Commodities and Strategy Division.

by: Elaine Diane Taylor





Josh Crumb


Interview Link




Looking at commodities as math and physics, without considering economics, you have commodities that are Opex, with a high cost to store and transport, and commodities that are Capex, with a low operating cost but high capital expense.

Every commodity sits somewhere between the two ends of this spectrum.

It boils down to:

1. How much energy does it cost to produce it?
2. How much energy does it cost to store and transport it (does it spoil or is it bulky)?

A high operating cost Opex commodity is a grain that can rot and electricity that’s hard to store.

Then you move through the spectrum to aluminum and copper, and towards the Capex commodities that cost a lot to produce but last longer and are easier to store.

At the very end of the Capex spectrum is gold.

Gold has the highest energy cost to produce because it’s scarce. You have to move 10 tons of rock to make about 10 grams of gold. That makes it extremely energy intensive to make.

But once you mine it the gold lasts forever. It’s not bulky and doesn’t rot or decay, so there is very minimal cost for storage or transportation.

It’s called a scaleable technology because once you make it you can use it forever — like digital music.

Gold is an element, not a rock, so it lasts forever. It’s never used up like other commodities.


Money’s one function is that it’s supposed to last — you’re not supposed to use it up. It’s a store of value. Gold as money is a store of value.

Gold is natural money because it lasts forever.


All commodities, from oil to electricity to grains, are usually all anchored in their cost function and marginal cost.

1. How much does it cost to make one from scratch?
2. How much does it cost to make one more unit after you break even?

The marginal cost is what it costs to make one more unit after you’ve hit a breakeven for your equipment and fixed costs, like labour, material and a bit of the cost for admin, housing and selling.

All commodities are anchored in how much is costs to make it but that’s not where the volatility is.

The volatility for commodities has nothing to do with where it’s anchored in the cost.

There’s a certain amount of energy that it takes to produce it. Then there’s a certain discount you have to add, depending on the commodity, for how much it costs to store it and how much it will rot.

The downside to your marginal cost is the discount for storage and decay. The upside is when it’s scarce.

Gold is different because there is no discount for storage and decay.

There is no decay with gold, it’s not bulky to store or move, and the cost function doesn’t change. The currencies move wildly, but the energy put into the earth to mine gold isn’t changing in a meaningful way.

What changes and is volatile is the marginal cost as well as the volatility of the currency they’re traded in, and where they are in the cycle of demand.

All commodities, except gold, deal with the cycle or flow of how much inventory you have and how much it costs to store and move it while it can either rot, as in grain, or not be storeable, as in electricity.

Gold doesn’t act like a commodity. It stores forever and isn’t consumed.

Gold is reported as flow numbers from India or China or an ETF, but these are fairly irrelevant.  People want to bean count gold like it’s oil or copper, but it’s not linear in its supply and demand like other commodities.

You can’t count gold like other commodities.

You can count this year’s production of oil or copper, but with gold it’s not just this year’s production that’s there. You have to include every year for the last 5,000 years.

Gold is a money stock that just keeps accumulating.

There’s about $7 trillion US worth of gold in the world, and each year’s production adds about 2% to the total.

It also happens that 2% is the percentage of population growth in the world and also nations’ inflation targets.


So how is gold volatile if it doesn’t rot or have storage problems?

The volatility comes in its currency component.

Gold doesn’t act like other commodities. It acts more like currencies.

There are a few different ways to look at commodities and to see that gold is the best form of money.

It’s volatile because people decide whether or not to use a certain currency depending on whether they’re being paid to use it or not. They ask themselves, “How much am I getting paid to use this or that currency (US $ or Japanese yen for instance) versus holding gold as money that has no yield but is constant?”

Some say a currency has value because a government decrees its use, it’s used to pay taxes, or that a military backs it. But people use a currency when they’re paid to use it.

They use a currency when the nation’s economy is growing and there’s interest paid on it. When a nation puts an interest rate on their currency then people are paid to hold it.


About one ton of gold every year is used in gold bars and coins. Exchange Traded Funds (ETFs) don’t fluctuate much from that.

But gold is used for jewelry about two and a half times more than bars and coins.

Jewelry is a huge factor in money.

It’s not just decoration. 80% of the gold jewelry sold in India and China might as well be a bar or a coin. They are buying it 24 carat as bullion.

They are buying it as money.

Even in the slums of India they have net worth in gold. The citizens living in a slum may only have $20 in gold, but the country doesn’t have a huge liability of $150,000 per citizen.

There’s a joke that the best carry trader on earth is the Indian farmer’s housewife. And it’s true. She measures and weights their gold every day. She is borrowing against that gold and then later paying it back. She is always long and shorting her currency versus her gold.

The gold in India is not just accumulating for dowry.

It’s circulating. It’s money.

That’s where most of the world’s gold still is on a population basis and a stock basis. Plus, of course, the central bank has a big chunk of it.


The ETF is not what is driving the price of gold.

If you map the pricing of gold peaking and falling, it peaked in 2011/2012 when Ben Bernanke took the US dollar to a 40 year low.

So why didn’t gold go up to $1,900 again when there were negative interest rates (NIRP)?

With NIRP the cost of energy came down so the cost of producing the gold, the energy cost, came down.

The commodity oil has a spot price that is determined by the supply and demand curve.

When did oil peak and start falling? 2012.

When did gold start falling? 2012.

So the price of gold didn’t go up because of the energy cost used in the production wasn’t going up. It was going down.

The cyclical part of the volatility wasn’t changing.

Currencies are constantly being changed and manipulated by central banks, and those central bankers are chasing the last numbers, just like oil producers.

But with NIRP (Negative Interest Rate Policy) you have the cost of energy coming down.

The spot price of oil is determined by the supply and demand curve. But currencies are constantly being manipulated and changed by central banks.


Feedback loops, positive and negative, are important to look at.

Central bankers didn’t create growth. It was shale oil and financial easing through the form of oil that created growth.

The price of oil lowered, so there was a stronger US dollar and better terms of trade.

That created higher consumer spending, higher interest rates, and more money in people’s pockets. So growth was up, interest rates were up, and gold went down.

That compounding feedback loop is now going the other way. We’re going back to a down cycle in energy.

When the capacity is worn off then gold will really start ramping up. That was the 2003 – 2007 phase.

Money is objective.

The central bank models are more and more wrong, but that doesn’t make the economy more and more subjective. Money is not subjective and it’s not a construct of our mind. It’s objective.

The best proof of gold as money is that it’s been demonized for the last 40 years and it still works as money.

It wasn’t governmental decree or a gold standard. And it wasn’t the Bank of England.

Gold worked with or without them.

Gold has held its value, and gram for gram things cost the same now in gold as they did in 1985.

So within a cycle gold is volatile because of a change in the cost of energy or the flow of commodity or currency. But from cycle to cycle gold holds its value.

Economists and finance people don’t believe in gold as value because it benefits them not to. The current system sucks money up to the finance people, so they benefit fom the system as it is.

If a middle America portolio manager recommends physical gold it means the customer won’t be buying an equity, and the finance people won’t be making a commission.

The financial world gets paid with commission and you don’t get a commission with physical gold.


The financial world doesn’t understand the physical world. They think it’s barbaric.

They think that consumer products and services drive the economy and it doesn’t.

The economy is driven by cost and volatility.

Financial people don’t get it because they don’t understand volatility. They believe volatility is due to “animal spirits”, and that’s after they’ve removed duration and volatility from the market by being the buyer of last resort.

Central Banks made themselves the buyer of last resort, which is a moral hazard, and now they’ve made themselves the buyer of first resort where they’re trying to set the price.

So, of course, it looks like there’s no volatility.

They look at cost on a supply and demand basis and then control those things to try to remove volatility.

But real volatility can’t be removed because we don’t know the weather tomorrow.


People are open to other mediums of exchange. Bitcoin was trying to mimic  the properties of gold — it has a high cost of production through cryptography, but after it’s produced it can be used forever. Just like gold.

Bitcoin has the same economic foundations as gold.

You can find Josh Crumb and his company Goldmoney on Twitter.

Goldmoney is the world’s gold savings and payments network.

(Disclaimer: I don’t have an account at Goldmoney. Yet.)


My thoughts…

When things become more polarized and you feel squeezed into a choice between two boxes remember you can always close them up and put them in the closet. Voila. Unpacked and ready to think for yourself.

I just drove across Canada from Vancouver to Winnipeg where I’m set up to live for a few months of writing and full on winter. Seeing a new part of my country. Sometimes you realize what you are by seeing something new that you’re not. I brought a handful of sand from English Bay in a pocket by accident, but it sits in a treasured spot on a dresser. There’s an economic lesson in there: the more you have of something the less it’s valued. The less you have of it the more you value that little bit. Even with sand and a little piece of a shell.

Greece is in the news again. Another loan? The song Not Much of Holiday still applies.

I’m going to talk about Josh’s thoughts on gold flow and stock as it relates to communication.

When we have a message, an idea or a value we place on something, and we want someone else to have the same understanding, we encode that ‘thing’ in a way that it can be transported. We send it through a channel we can also call a medium, and then the person on the other side decodes it. This is my guru Marshall McLuhan’s basic thought.

There are two main things that affect the message: 1. the message itself  2. the medium that is transporting the message.

For example, I think of a picture and say a word that means the picture in a language.  The sound travels through the air, which is a medium to move sound, and someone hears the sound. They decode the sound with their language, and then they have our picture in their mind.

The are so many ways to vary that. Here’s what I think:

Take the telephone game. I whisper a phrase in your ear, you whisper it to someone else, who whispers it to another, and so on down a line. The last person in the chain usually hears and understands something completely different from what was said at first.

What changed?

Maybe the first phrase was so new that the person hearing could not visualize or understand it, and so thought of words that they did know that sounded similar.

Maybe there was a lot of wind in the air and so the phrase was easy to understand but the channel, medium or flow,(all different names for the same thing) didn’t move easily and interrupted the message.

There’s two things right there that could cause a misunderstanding.

Here’s another and it’s the one that makes this more interesting:

What if the first person, or someone along the line, didn’t want the original value or message to be decoded correctly at the end?

In media it can be called propaganda, which slyly changed its name to public relations after World War II.

We talk about economics or geopolitical power as if it’s an absolute thing. As if there is a  universal truth we can move about from one place to another.

Is there?

In physics is there a universal law?

Let’s see how close we can get.

We would want the message itself, the idea or value, to be something that doesn’t decay or change over time. We would also want the medium it moves through, be it the air for words, or a wire in the case of electricity or a language without interpretation or multiple meanings, to be free from manipulation. And last off we’d want the receiving end to not have anything in the way that stops it from receiving or decoding it.

For example, you can throw a ball that sails through the air on a calm, sunny day, but if someone grabs the hands of the other person at the last moment they won’t catch the ball.

You can throw a ball and if the intended receiver doesn’t trust you or like you they may purposefully avoid it altogether. If they see if coming. In that case maybe you disguise it as a rose or you have a friend of the catcher toss it instead.

These things all matter in communication, they matter in physics and they matter with money.

I’m always looking at things through a rod and ring model (from the song Rod and Ring). It’s like electromagnetic energy that moves back and forth and in a cycle at the same time. With electromagnetic energy you run electricity through a coil of metal like gold or copper, and then put a rod of iron back and forth quickly through the coil. Some call this the yin/yang or the masculine/feminine. It has many different names.

Back to gold and money. Let’s say you have the idea of a value that you attach to an object and you want to trade it for another object. Gold can be both that object and it can also be the conduit or medium through which you trade the value with someone else.

Put another way it means that gold can be a commodity, with a certain value, and it can also be the medium of exchange you use to trade that commodity with.

Gold works well as a currency (medium of exchange) that won’t decay on its way to the other party, and as the money itself (store of value) that’s being moved.

It’s scarce so it’s valuable. It lasts forever so it can be transported without decay or spoilage, and it’s an element so it’s pure and not diluted.

If communication could be gold. Wow. I would want to find that. I don’t think it’s words by themselves. It’s something else. Pure communication without decay or dilution.

Maybe it’s music or love. I bet it moves symbolically instead of in a straight line. Maybe both at the same time. Maybe it’s like torsion physics. That would be like the Rod and Ring.

Or like time in a bottle.

Here’s me in the living room in Vancouver just before I left, singing Jim Croce’s Time in a Bottle:


Elaine Diane Taylor~

February 8, 2017




Not Much of a Holiday

words and music Elaine Diane Taylor

© 2015 Intelligentsia Media, Inc. All rights reserved.


Single available on iTunes

The Greek bank holiday and long lines to get a few euros for the day.

Debt deals behind closed doors. The media telling us what opinions to have. China building islands in the South China Sea and claiming all the international waves.

More dealing to come. More standing in line for those who owe. Who owes? There’s a long line of nations in debt and this is far from done.



Preparing for the Fall live boutique album available on iTunes — featuring Wag the Dog, Black Swan Dive,  American Pie and Gods of the Copybook Headings.


Coins and Crowns

words and music Elaine Diane Taylor

© Intelligentsia Media Inc. All rights reserved.


from the album Coins and Crowns available on iTunes

Single featured in Episode 1 of Mike Maloney’s documentary series Hidden Secrets of Money.

When a nation leaves the gold standard and sound money, and borrows to go to war, then hunger goes up, hope goes down, anger goes up, then it all goes down.

The Gods of the Copybook Headings

words by Rudyard Kipling and music by Elaine Diane Taylor

©2014 Intelligentsia Media Inc.


from the album Preparing for the Fall available on iTunes


The copybooks of the early 1900s gave us all the wisdom we need. The sayings that were copied are the truths, the gods, of our world. All the empires who followed the gods of the marketplace instead have fallen, and there’s terror and slaughter when the gods of the copybook headings return. The lyrics are by Rudyard Kipling. One of my gurus.

Another Week on Wall Street

words and music Elaine Diane Taylor

© 2013 Intelligentsia Media Inc. All rights reserved.


from the album Coins and Crowns available on iTunes

See the bankers wave their Wall Street wands and conjure piles of paper green. Naked short selling is like betting that your neighbour’s house will burn down. But in this scenario it happens to burn down. If the bankers win then we lose the whole world as we know it. I wrote this in 2009, with a lyric “A little grease (Greece) is floating out to sea, and little pigs (Portugal, Italy, Greece and Spain) are bobbing up and down, they’ll send a storm and we’ll see, when the tide goes out who’s naked on the beach“, and it’s coming on now. The world is changing as we know it.


Nothing on this site is intended as individual investment advice. We’re all watching which way the wind is blowing.

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