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A gold bug with a difference

Here:

The gold you see in the photo above was not found in a river or a mine. It was produced by a bacteria that, according to researchers at Michigan State University, can survive in extreme toxic environments and create 24-karat gold nuggets. Pure gold.

Maybe this critter can save us all from the global economic crisis?

On the contrary, this is not the dream, it is the nightmare. This bug, if it really can “create” 24-karat gold nuggets, or can in the future be persuaded to, might destroy gold as a meaningful replacement for the deranged fiat currencies now ruining all out lives.

A commenter tries to reassure us about the cost of this process, but his misspelling of “affect” does not inspire me with much confidence:

This is cost-prohibitive on a large scale, so it would/could not really effect the gold market.

Well maybe for a while, but technology these days is notoriously prone to plunge in cost with the passing of time.

The good news is that this bug doesn’t, like a government creating fiat money, create gold out of thin air. It creates it out of gold chloride. I presume that gold chloride is very roughly as rare as gold itself, as in similar order of magnitude rare. Heaven help the global economy if it is not rare. According to this Gizmodo piece, gold chloride costs “Less than gold, but still plenty”. Please, make it so.

As to the future, please, let no very large stashes of gold or gold chloride be found on nearby planets or asteroids.

Thank you Instapundit. Or not as the case may be.

44 comments to A gold bug with a difference

  • Amiable Dorsai

    Making the chloride is one way to concentrate gold from low-grade ores, but it’s less cost effective than using cyanide (if my nearly 3 decades old memories of inorganic chem are reliable). This gets a lot more interesting if we can train up some bugs to make the chloride from trace amounts in otherwise spent ore, then feed that to these guys.

    Aside from the effect on save havens for wealth, this gets really interesting if you can get a similar system going for copper (whose chemistry is not too different from gold’s). It would be very nice to have cheap copper again.

  • The Sage

    This would be interesting if it were recovering gold from the sort of dilution of the element found in sea-water.

  • Trespassers W

    An innovation that makes a scarce resource more abundant is a nightmare? Check your premises.

  • Bod

    I was going to post a long item on this issue, and then thought better of it because my knowledge of industrial metals extraction technology is now about 40 years out of date.

    The key point is that the Gizmodo article ineptly (as always) fails to indicate that notoriously ‘… toxic chemical liquid you can find in nature …’ occurs in seawater. They’re not (really) talking about treating heaps of tailings or puddles of toxic waste spewed out by metal processing plants like Norilsk.

    Concentrate seawater and process the resulting halide and you *could* extract plenty of gold. Combine the processing plant with a desalination facility, and with gold at a (much) higher price/oz and you just might be in business.

    I’m not cashing in my kreuggerands anytime soon.

    I did think that Gizmodo was performing a great social service by explaining that the demonstration destroyed value, since the reagents were more costly than the value of the gold they produced.

    And that point about the bacteria being 25 times stronger than previously thought! Sounds like an ad for the new Clorox detergent!

    Gizmodo, such a valuable educational resource, and a boon to the young and mentally infirm.

    Madsen Pirie must be quaking in his boots.

  • Bod

    Interesting that the previous commenter came up with copper – I wish I’d done my longer post now.

    This really isn’t new technology – in the case of copper, mines have been salting the tailings from copper workings with SRB’s (sulphate-reducing bacteria) for years now. The problem is that most of the copper deposits we have exploited have been copper porphyries. These rocks have a few percent of copper deposits in them, and we got VERY good at predicting where they’d be based on computer models developed in the 70’s and 80’s. So, like a rigged game of ‘Battleships’, the mining firms surveyed and developed them.

    They could bring on a deposit with 4% or so Cu, expecting to extract 2-2.5%, and salting the tailings might give them another .5% or so. If they did that at the time of primary processing, there’s going to be very little left in the tailings – you never get 100% extraction – and I’d suspect that if the SRBs did their job, the mining and concentration processes would have got near to that stage quite soon after the ore was mined, so the opportunity to go back, and refine subeconomic heaps of tailings will be rare.

    Reworking old heaps of silver- and lead- tailings by using ‘new’ technology has happened time and time again, but I don’t think it’s likely to happen with copper mines.

    Copper is just rarer than we’d like. Period. It’d be nice if it was cheap again, but the only way I think that’ll happen is the continued evolution of technologies to replace its use. Part 1 was replacing copper as a communication medium – the fiber optic revolution. Part 2 would be finding something that’s a better, cheaper thermal/electrical conductor.

    The invisible hand is waving us on, urging us to go elsewhere.

    Alternatively we could ask Chinese businessmen to stop hoarding copper cathode in warehouses.

  • Bod

    Trespassers W – you wanna know what a scarce resource is?

    An intelligent article in Gizmodo.

    I’ll stop hogging the comments now.

  • Classic idiot view of the role of gold.

    What makes commodities useful as anti-statist money is not that their quantities are fixed (they never are), but simply that their market-determined values cannot be debased by government fiat. No more, no less.

    Wen a bacterium is appointed Fed Chairman, let me know.

  • Well, I think if a bug was devised or discovered which could turn any old rubbish into gold, at next to no cost that would be bad news economically. But luckily, as the Gizmodo piece concedes (in brackets – in what I suspect was an afterthought) and as I say in a whole paragraph, that isn’t the story.

  • Bod

    Come on Brian, even if it were true, it’s not like the world supply of commoditized gold would suddenly increase by more than a fraction over the course of a few years.

    Net effect – over time, a current ‘store of value’ becomes less appropriate as a store of value. People ditch it, and move to some other perceived store of value.

    Now, if you could increase the amount of some other ‘store of value’ over the course of a few years (or weeks), by some significant fraction *cough* QE’x’ *cough* then that would be a problem, wouldn’t it?

  • Simon Jester

    Brian,

    Have you tried reading Heinlein’s “The Door Into Summer”?

    (It also ties nicely into Natalie’s “Predictions” post from a few days back – transmutation of elements and household robots being developed before CAD/CAM software.)

  • Schrodinger's Dog

    Brian,

    A couple of points to make here.

    Firstly, even the advocates of a gold standard – at least the technically literate ones – have conceded it could be undermined by technological advances which dramatically increase the supply of gold. For example, as has been hinted at in the other comments, a cubic mile of seawater contains quite a lot of gold. However, extracting it is not viable, given current gold prices and current technology – but that may change. Alternatively, should asteroid mining become a reality, it would likely dramatically increase the world’s gold supply.

    Not that any of this need necessarily be a problem. One of the current objections to the reintroduction of a gold standard is it would be biased towards deflation, as the supply of gold tends to increase more slowly than the economy. That a gold standard endured during the nineteenth century can be partly explained by the discovery of major new supplies of gold in Africa. So new sources of gold, whether from bacteria, seawater or asteroids, may make a gold standard more viable, rather than less so.

  • Dale Amon

    Also note that more gold simply means each unit of the commodity deflates a bit over time. Investors will hedge themselves just like they have done as long as there has been a trade in commodities.

    The big, big upside is that gold is an exceedingly important industrial material. Almost all of the connectors I use in aerospace applications have a nice thick layer of gold on them. Even consumer electronics, your old PC, your cell phones, contain lots of gold. Drop the relative material cost of gold and you drop the relative cost of all sorts of electronics.

  • About 30 years ago Alexis Gilliland wrote 3 novels about the space colony Rosinante and its conflict with TPTB on Earth. In the third book the boys and girls of Rosinante zone refine an asteroid using a giant mirror in order to extract the gold. This was to cause economic grief to those who were giving them so much trouble.
    Fun stories if you find them in a second hand bookstore.

  • Dishman

    For Gold in space, you have to consider the cost of de-orbiting. At Shuttle prices, the de-orbit cost eats a lot of your budget. It really only makes sense if you’ve got the rest of the infrastructure around it.

    Given that it would help drive building the infrastructure, I really have a hard time seeing a new Gold Rush as such a bad thing.

  • Alsadius

    This is one of the most economically illiterate posts I’ve ever seen. A technological innovation that will produce more of a scarce and valuable resource from waste materials, and you decry it because it might upset your political protest movement?

    I’ve been saying for a long, long time around here that leaving monetary policy to geology isn’t a particularly wise idea. Never gotten a very warm reception. Are you starting to see some merit to my position? Sure, use gold if you like, but realize that this sort of thing happens to your money, and it doesn’t happen to mine.

  • Bruce

    I seem to recall that the South Africans were playing with this technology about thirty years ago.

    The idea was to fracture very deep gold-bearing seams and then pump down a slurry of these bugs.

    Let the bacteria do their thing for a few days / weeks and then pump them out, annoy them so they coughed up the loot and then send them down for more.

    There must be a few savvy rock-doctors with more info out there.

  • Brad

    If gold became plentiful, then something else would take its place to mark against. The point would be balance against something that isn’t readily debased by lower lifeforms (like bacteria or politicians).

  • Laird

    “this sort of thing happens to your money, and it doesn’t happen to mine.”

    And just what is “your” money, Alsadius? (And no, I don’t see much merit in your position.)

    I agree with the commenters that this isn’t a reason for concern. If the price of gold gets so high that methods such as this one become economically feasible, it will just put a lid on prices. That’s what always happens when something gets unduly expensive: clever people find alternative materials, technological advances, etc. That’s a good thing.

    Oh, and what Brad said.

  • Alsadius

    Laird: Fiat, of course. The kind of money where I actually know what it’ll buy me next year.

    And I fully agree, new sources of gold are a good thing. My primary complaint about this article is that Brian Micklethwait seems to think differently.

  • Alisa

    And what if you realize that it’s going to buy you very little, rapidly sliding towards nothing?

  • llamas

    Just a thought comparison:

    Alumimium was first isolated as a metal in 1827. Its very existence was unknown prior to about 1750. At the time it was used to cast things such as the cap of the Washington Monument and the statue of Eros in Picadilly Circus (late C19), it was so difficult to extract that it cost more per ounce than silver.

    Today, we make beer cans out of it, and throw the can away when the beer is gone.

    I’m not suggesting that gold can follow the same path as alumnium – it would make a lousy beer can, anyway. But it is a cautionary tale.

    The price of aluminium is no longer governed by rarity and difficulty of extraction, as it once was. Neither is the price of gold, which means the same fate can befall it.

    Extraction from sea water is a silly side-show bagatelle. There’s literally mountains of profitable ore available, even at half the current price.

    llater,

    llamas

  • Greg

    Well this article and comment thread certainly do serve to separate those who think in terms of a useful raw material with desirable properties, and those with a fetish.

    “Leaving monetary policy to geology”, I like that. Anyway, the so-called inherent value of gold is mostly just social convention.

  • Well yes Greg, as opposed to leaving it to trees and ink or nowadays, pixels created with the push of a few buttons.

    I rather like the idea of states not having a ‘monetary policy’ at all but of there is going to be one, geology seems safer that political expediency.

  • To defend myself, I don’t think it is right to call a concern about currencies just now, and a possible improved currency world based much more than now on gold, a mere “fetish”.

    Politicised fiat currencies are now causing utter catastrophe to the world. If gold were to be taken out as any sort of alternative basis for better currencies, by an implausibly sudden, abundant and easily accessible amount of gold being suddenly discovered, or even “created”, that would be, from the future of currency point of view, bad news. I quite agree that it would be good news for lots of other purposes.

    Good currencies are very important, very good to have, far more so (I would say) than somewhat improved electronics. The gradual and now total separation of state currencies from gold, from “geology”, has been and is now a global disaster. If gold were to cease being worth even thinking of as something to get back to, for currency purposes, that would be worrying, from the currency point of view. I don’t think I am suffering from a gold “fetish” because I think these things.

    Luckily, no such plummeting in the price of gold is in the offing, and certainly not because of these bugs, as was conceded in the article I linked to (in brackets), and further emphasised by me. Geology now poses no threat to gold-backed currencies. The rising murmur about returning currencies to gold will murmur on. Good.

    Meanwhile, whether geology will ever undermine gold backed currencies or not, I favour lots more thought about “fiat” currencies that might actually work well, i.e. currencies supplied by competing currency entrepreneurs.

  • Alisa

    There’s no such thing as ‘inherent value’, Greg, as value is, by definition, subjective. A medium of exchange/store of value are, on the other hand, a social convention.

  • Alisa

    Me english was crooken…sorry.

  • Laird

    “Fiat, of course. The kind of money where I actually know what it’ll buy me next year.”

    If this isn’t a joke, Alsadius, you are certifiably insane.

  • Alsadius

    Alisa: Next year my money will buy me about 98% of what it does now. Except that I invest my money in profit-making ventures, so it’s more likely to buy me about 102% of what it does now. Gold bears no interest, and it looks overdue for a serious crash.

    Perry: To clarify, I don’t care whose fiat money I use, as long as I can trust them to take good care of the system. But developed-nation governments have done so for centuries, with a pretty good track record all told, so I’ll happily take their money.

    Brian: The biggest problem I have with private fiat is that the only profit source for a private fiat issuer is segnoirage. That creates a really ugly incentive structure. You want the currency issuer to get most of their income from the economy running smoothly, which governments of course do. This isn’t an insoluble problem – for example, Canada up until the 1930s used bank-issued paper money, and that worked just fine because the handful of major banks were so deeply intertwined with the economy. Similarly, there’s no issue with a mint that strikes physical precious-metal coins, because they can’t run the presses. But if someone just started issuing paper money as a business I’d run very, very far away.

    Laird: Do you think that every mainstream economist is “certifiably insane” too? Fiat moves between maybe 1-4% per year, and always in a constant direction. I can guess what my money will be worth plus or minus a handful of percent a decade out. Gold, you can’t predict it that closely six months ahead. The idea of running an economy on something as unstable as gold(or any other single commodity) gives me hives – it’s like building your economy on a fault line. The only way to have a stable monetary base is to have a currency that is scaled to the size of the economy as a whole. No commodity can do that, because no commodity is anything like a constant proportion of the economy.

  • Dishman

    Alsadius,

    See reference, Hyperinflation.

    It does happen.

  • Laird

    Alsadius, you really don’t understand anything about money or monetary history, do you?

    1-4%? Yes, in the US at the moment as reported by the same politicians who have every incentive to lie about the measurement. (Even if you accept the CPI as a reasonable proxy for inflation it’s been systematically under-reported, and the “yardstick” distorted, for decades. Your purchasing power has actually declined.) But even in the US only a few decades ago reported inflation was running in the teens. I suspect you’re too young to remember mortgage interest rates getting close to 20%, but it’s a fact that they did in the late ’70’s.

    Government-controlled fiat money is not a new phenomenon, but in every case throughout history governments having the power to debase their currency have done eventually so, with disastrous results. Every time. No exceptions. What’s new today is that for the first time in human history every government on the planet is issuing fiat currency, so there’s nowhere else to turn when your own government’s currency runs off the rails. When the crash comes they’ll all go down together. Only gold holds its purchasing power, and one doesn’t need to receive interest on it with purchase power parity.

    And no, there’s no need for a “stable monetary base” or one which grows at the same rate as the economy (ignoring the fact that ours is actually growing substantially faster than the economy). A constant monetary base in a growing economy would result in mild secular deflation, which is a good thing: it means that everyone benefits from the economic growth. With inflation, only those close to the source (i.e., governments and banks) benefit; everyone else loses.

    If you actually want to learn something about monetary history and fiat currencies, read The Creature from Jekyll Island by Edward Griffin and/or Paper Money Collapse by Detlev Schlichter. They’ll open your eyes.

  • Alsadius

    Dishman: I don’t deny that it happens. It also happened with commodity-money systems – see, for example, the discussion in Ch. 4 of The Wealth of Nations(http://www.gutenberg.org/files/3300/3300-h/3300-h.htm).

    And that’s just fraudulent devaluation – ordinary commodity-market devaluation is vastly more common. If gold had been the currency between its peak in 1980 and its trough in 1982, for example, the inflation rate would have been 69.3% per year(9.6% USD inflation, 54.6% gold inflation). Conversely, if gold was the currency between its 2008 tough and its 2011 peak, there would have been a 27.3% annual deflation rate (1.6% USD inflation, 28.5% gold deflation – data from http://www.kitco.com/charts/historicalgold.html and ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt). Whatever you think of the merits of CPI measurement, I don’t believe that anything even half as extreme as either of those has happened in the developed world since 1923.

    Laird: I’ve seen reasonable-sounding arguments that CPI both overstates and understates inflation. It’s a complex question, and frankly not one that really admits of a much better answer in practice than the CPI system(GDP deflator is a lot nicer in principle, but way harder to measure). And even given that US inflation briefly hit 13% in 1980(wow, a whole 1/5 of what gold inflation was running at in the same period!), that’s still a much better long-run record of stability than gold has.

    Re “eventually”, you’ll eventually die, so you might as well off yourself now, right? All nations have eventually fallen, so burn down Buckingham! Look, nothing in the world is eternal, but you have a much better chance of getting your gold stolen than you do of seeing the death of fiat. After all, the pound is a currency that’s 1200+ years old, and it has literally never experienced hyperinflation. You might as well be waiting for the Resurrection at this point.

    As for who benefits from growth, are you actually trying to tell me that the average person has seen none of the growth from the last century? And re deflation being a good thing, please find me an instance of deflation happening in good economic times. And I’m not just limiting that to fiat – pull an example from commodity money if you like.

  • Paul Marks

    Brian – how dare you have little faith in someone just because they can not spell (although I would never forget the letter X in “effect”) and think that “grammar” is an elderly female relative.

    This person (whoever they are) is clearly someone after my own heart!

    However, you are correct in your belief that a cheap way to create vast amounts of gold would ruin its utility as money.

    Another commodity would have to be used instead.

    I seem to hear the voice of a certain servant of Putin calling out “silver, silver, silver”.

    Shut up Max – making vast amounts of gold from nothing much (as in a certain “Star Trek: New Generation” episode that was not shown because even the establishment thought it was too leftist) is not going to happen any time soon.

  • Laird

    Alsadius, gold going up or down is not inflation or deflation, because you are measuring it against the dollar. The price of gold (expressed in dollars) does fluctuate, but that’s in large measure due to dollar inflation and variations in the worldwide demand for (and confidence in) dollars. When you use a rubber measuring stick it’s hardly surprising that you get variable results!

    The purchasing power of gold is relatively stable over time. That’s all that matters. Anyway, it’s not so much that I’m fixated on gold per se. What is important is that governments not be able to manipulate the currency, that it be tied to some exogenous and clearly ascertainable standard. Something besides gold could serve, it’s just that gold has a long history of being a storehouse of wealth and has been accepted as such in almost every society. If you have a better suggestion I’m open to it. But infinitely inflatable fiat currency, wholly subject to the whims of politicians, is most assuredly NOT it.

  • Alsadius

    Laird: I am *not* measuring against the dollar. The +69.3%/-27.3% are both measured against the CPI basket. Again, CPI isn’t perfect, but it’s pretty good. You seem to be advocating the “define gold as the only true money, and ignore the economy” approach, which is…less reputable, shall we say.

    And I don’t care about long-term stability – I’m not trying to hoard dollar bills for a century. I care about predictability, because predictability is what allows people to make investment decisions sanely. Just imagine trying to loan money on a gold standard, where you have no way of knowing if you’re actually going to get back half of what you loaned, and the borrower has no way of knowing if they’re going to have to pay you back double what the money was worth.

  • Paul Marks

    Alsadius.

    Firstly please do not talk about a gold (or any other) “standard”, the word “standard” just confuses the issue.

    Either the gold is the money or it is not – implying that gold is a “standard” for something else that is the money is a mess (rather like the absurd system of Benjamin Strong and the New York Federal Reserve in the 1920s).

    As for the idea that government fiat (i.e. order – edict) money is more “stable” than commodity money…..

    Have a look at your own “CPI” (as useless as it is – compare the “CPI” to the rise in prices that real people experience when they go shopping over time). The fiat Dollar has collapsed in value over years and decades.

    Gold has not collapsed in value. You could get top quality stuff (for example a full outfit from top quality tailors) for an ounce of gold a century ago – and you still can. You would not need a grain more gold now than you did then.

    However, if you dislike gold that is fine – then get people to trade with you in sliver (or some other commodity).

    But in the times to come – only a fool will trust government fiat money.

  • llamas

    Laird, Paul Marks – please stop this repetition of the fable that ‘the purchasing power of gold is relatively stable over time. . . ‘ and the repetition of the ‘suit of clothes’ fallacy.

    All thse fallacies do is pick two highly-arbitrary points in time and say ‘Look! The value was the same at these two points!’ and then extrapolate a flat line over time. For every two points, separated by 100 years, that you pick, I get two pick two points, similarly separated, that ‘prove’ that gold has appallingly-variable purchasing power.

    Double-cheating when one ‘value’ is a true free-market value and the other is a fixed-price ‘value’.

    Saying that an ounce of gold would buy you a ‘full outfit from a top quality tailors’ today and a hundred years ago conveniently ignores the fact that, twenty years ago, that smae ounce of gold couldn’t have bought you so much as the pants of that suit.

    Here’s the inflation-adjusted price of gold for the last century.

    http://inflationdata.com/Inflation/images/charts/Gold/Gold_inflation_chart.htm

    After 1971, this shows what people were prepared to pay for gold in an open market. Note the wild 1000% fluctuations in the market price, many over lleatively short periods. This tells us many things, but ‘relatively stable’ is not one of them.

    The purchasing power of gold fluctuates just as wildly as the value of most other commodities, and more than many. Please stop imbuing it with some magickal power of constancy, which it simply does not possess.

    Alsadius, you’re doing a good job, but you’re p*ssing in the wind here. The gold delusion is just too powerful.

    llater,

    llamas

  • Paul Marks

    llamas.

    I have already said that if people do not like gold – I am happy for them to use some other commodity.

    As for gold (for example) buying more stuff over time – as it becomes less difficult to make things.

    Well I am HAPPY with that – as I hope you are.

    But in case you missed the above I will say it again….

    You want to use sliver (or copper or….) as money.

    GO AHEAD – if you can find willing buyers and sellers willing to use this other commodity (silver, copper, …..) as money.

    I am not going to force gold on you.

    My only point is that fiat money (government whim money) is a terrible idea.

    And it is soon to fall apart.

  • Alsadius

    Paul, CPI represents what I pay for things pretty well. Which makes sense, given that it’s literally defined as “the price of things people buy”. Most of the complaints I hear about it seem to be from people who forget that they’re not buying the same 13″ B+W TV that they bought in 1952. And as I said above, I really don’t care what happens to the value of money over centuries, predictability and a scale of years are both far more relevant.

    Also, how soon is “soon”? For example, what odds would you take that, say, less than half of the world economy will be traded with government-issued currencies in a decade?

    Llamas, thanks for the support. Glad there’s someone else here who can read a graph.

  • Google “bacteria used in south african gold refining” and you will realise that here in the southern tip of Africa we have done this for many years already! Nothing new about this at all! I hate journalist that are too lazy to fact check before publishing old news…

  • Alisa

    Thought I’d share this.

  • Alsadius

    So you’re arguing that because the Commies are doing it, it must be good economic policy?

  • Paul Marks

    Alsadius – you have just made a stupid remark.

    China de facto ditched socialism many years ago. Do not confuse the vicious POLITICAL DICTATORSHIP of the Communist Party with economic socialism (they are not the same thing).

    Or have you not noticed that China is becomming the main manufacturing power on the planet?

    Certainly they are not a free market.

    But neither is the United States – indeed American government spending, taxes and regulations are worse than Chinese ones.

    You also seem to have not understood what I wrote – about fiat money (such as the Dollar) being government whim money (which the government can expand to any level).

    I am not going to bother to write it again.

    This time next year you will understand.

  • Alisa

    Alsadius: I posted that link as a point of information for anyone interested, not as part of an argument – that, because I am not having an argument, and that because it seems to me that you and I will just have to agree to disagree.