Why Does El Salvador Hold $86M of Gold? \ stacker news ~bitcoin

1290 sats \ 48 comments \ @kr 17 Mar bitcoin

I just learned that El Salvador holds 1.37 tons of gold, valued at roughly $86 million today.

Their gold balance has remained constant for at least the last 3 years when they began buying Bitcoin.

Given that they’re making a big bet on Bitcoin (their Bitcoin holdings are now worth $400 million), I suspect they also believe that Bitcoin will eat gold’s market share as a store of value.

If that is true, why continue to hold gold?

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164 sats \ 15 replies \ @oliverweiss 17 Mar

I think it’s clever, if you are responsible you don’t put all eggs into one basket.

5 sats \ 14 replies \ @kr OP 17 Mar

strongly disagree here.

if you don’t know what you’re doing you don’t put all eggs in one basket.

“i think diversification and all the stuff they’re teaching at business school today is probably the most misguided concept everywhere”

Stanley Druckenmiller

“if you want to make a lot of money, resist diversification”

Jim Rogers

“diversification is a protection against ignorance. it makes very little sense for those who know what they’re doing”

Warren Buffett

“the idea of excessive diversification is madness”

Charlie Munger

148 sats \ 0 replies \ @BitcoinIsTheFuture 17 Mar

Yup you nailed it when you have conviction you don’t diversify. Look at the holdings of Berkshire Hathaway. You can’t given them a pass on lack of diversification and then tell us to do it…. Oh unless you collect fees from selling garage investments

79 sats \ 9 replies \ @freetx 17 Mar

What happens if ES is hit by massive EMP strike that wipes out all electrical infrastructure?

31 sats \ 8 replies \ @kr OP 17 Mar

they probably have to rebuild it all

79 sats \ 7 replies \ @freetx 17 Mar

Now extend that idea, its not a targeted EMP attack specific to El Salvador, rather its the results of worldwide event because of world war, asteroid hit, solar activity, etc...

So now there is no "lets rebuild" because there is no one to supply the materials to rebuild....all nations are on their own.

Being a responsible leader means hedging your society against unlikely, but possible catastrophe.

31 sats \ 6 replies \ @kr OP 17 Mar

at that point i think the world would have bigger problems than any asset (including gold) could fix

79 sats \ 5 replies \ @freetx 17 Mar

An EMP hit will be the equivalent of a reboot back to 1700's. Would you consider a country halving gold in 1700 a required attribute for future development?

Not having any gold will only make their situation worse as it will delay jump starting the economy with a solid monetary base.

42 sats \ 4 replies \ @kr OP 17 Mar

i wouldn’t say gold is a required attribute for future development.

the world would temporarily revert to the 1700s without electricity, but the world would not lose its collective understanding that Bitcoin (or something like it) is a better way to store value than gold.

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0 sats \ 2 replies \ @oliverweiss 17 Mar

Except that they are “managing” a country not an investment fund.

0 sats \ 1 reply \ @kr OP 17 Mar

why shouldn’t the same rules apply?

shouldn’t a country’s treasury be managed by someone who knows what they’re doing?

69 sats \ 0 replies \ @oliverweiss 17 Mar

You are right, there are of course risks involved. I originally wanted to write something like that the states should not be making money, that the purpose of governments is to do something else. On the other hand governments are pretty bad in doing what they do, so I quickly realized that actually it would be great if they knew how to and actually did made money themselves and not heavily relied on taxes. I guess their spending habits would changed too.

79 sats \ 2 replies \ @TwoLargePizzas 17 Mar

Running a country is very different from being an individual or company going all in on Bitcoin.

There's probably a multitude of risks and political difficulties he has to consider. I can't even begin to imagine what they might be but I certainly don't envy his position.

0 sats \ 1 reply \ @kr OP 17 Mar

Running a country is very different from being an individual or company going all in on Bitcoin.

why?

0 sats \ 0 replies \ @TwoLargePizzas 17 Mar

Because a country is an immovable plot of land surrounded by other countries with different motives.

An individual and a company can pack their bags and leave. The actual country cannot. They must defend themselves from attack, sabotage, subversion and espionage.

To be clear, I'm not saying holding gold is the right thing to do. Gold can be seized and stolen far more easily than Bitcoin. I'm just saying Bukele has a lot more to think about than your average BTC holder.

79 sats \ 0 replies \ @Undisciplined 17 Mar

It could be with an expectation that some form of gold based international settlements could resume.

My guess, though, is that it's more vague and they're keeping it "just in case".

69 sats \ 2 replies \ @grayruby 17 Mar

I haven't sold my gold either. Should I?

Maybe if I am trying to absolutely maximize returns but it seems like there is an unlimited supply of fiat for me to procure a small share of to just buy more bitcoin that I don't need to sell my gold or chairs to get more. It would be great if there were more ways to earn bitcoin in my spare time as well but buying it is ok for now.

Also, although I agree bitcoin is going to eat gold's market share as a store of value I still like it as a fiat hedge and I believe if fiat collapsed tomorrow they would go back to gold way before they went to a bitcoin standard. Global powers hold way too much of it. That doesn't mean people won't continue to choose bitcoin over gold just that I don't think it is going to lose monetary premium any time soon.

50 sats \ 1 reply \ @kr OP 17 Mar

Global powers hold way too much of it

doesn’t this hurt the odds of gold being used again in the case of a Bitcoin failure?

i feel like gold’s time has passed no matter what happens to Bitcoin, going back to the gold standard doesn’t seem realistic in any situation to me

0 sats \ 0 replies \ @grayruby 17 Mar

I don't think they will go back to a gold standard per se but I do think that something along the lines of a commodity basket backed digital SDR might be the route they go if current fiat system collapsed.

"we have something new and better than those dollars. It's digital but it is backed by commodities".

It will be a mess and totally as manipulated as the current system but I think they try everything and anything before Bitcoin. Doesn't mean Bitcoin doesn't win in the end.

69 sats \ 6 replies \ @expatriotic 17 Mar

We're crazy, we go all in on this magical internet money. Responsible people/nations hedge. Plus countries are not individuals.

0 sats \ 5 replies \ @kr OP 17 Mar

doesn’t the “diversification” argument fall flat when you’re diversifying with the asset that Bitcoin is going to eat?

0 sats \ 4 replies \ @expatriotic 17 Mar

For us yes

0 sats \ 3 replies \ @kr OP 17 Mar

why would this be different at the scale of a nation?

bitcoin eating gold is going to happen to the exact same extent whether your treasury is $500 or $500 million

79 sats \ 2 replies \ @expatriotic 17 Mar

Different in the sense that we can make unilateral decisions quite easily. Whereas nation states often have to humor people with conflicting ideologies... At any rate he's not adding to it though...

21 sats \ 1 reply \ @kr OP 17 Mar

It seems like Bukele has a lot of agency to make his own decisions, one might argue he has even more agency than most CEOs of public companies or investment funds

0 sats \ 0 replies \ @expatriotic 17 Mar

Interesting, I'm not up on politics of my own country, let alone that of other countries

69 sats \ 2 replies \ @kingzing131 17 Mar

Even holding it as a hedge against volatility would be good. gold has been doing quite well recently and will be much higher if there is a huge financial collapse

0 sats \ 1 reply \ @kr OP 17 Mar

why is volatility a bad thing here? All signs point to El Salvador holding this Bitcoin for a long time

0 sats \ 0 replies \ @kingzing131 17 Mar

Volatility implies it might not be enough in time of needs.

69 sats \ 4 replies \ @TNStacker 17 Mar

Because they play the game of nations and the game of reserve banks and if they really want to play with the big boys they have to have gold.

For now.

21 sats \ 3 replies \ @kr OP 17 Mar

what do you mean they “play the game of nations”?

El Salvador has shown they are happy to take their own path and go against conventional advice for managing a nation’s treasury.

Also, Canada is a G8 country with exactly zero gold holdings. Why are they not playing the “game of nations and the game of reserve banks”?

69 sats \ 2 replies \ @TNStacker 17 Mar

I mean right now, not the future. We are not there, yet, and if you are a nation wanting to do things on a national scalen(play the game of nations), you deal in dollars, or you deal in gold.

BRICS is starting to break away. The middle east tries to make it oil, bitcoin will be the way, but for now at national level, do you dispute that it is dollars or gold?

Canada is not a good answer. They are a top 5 gold producer!

0 sats \ 1 reply \ @kr OP 17 Mar

Canadian miners produce the gold, but the government chose to sell all their holdings years back (2016 i think)

0 sats \ 0 replies \ @TNStacker 17 Mar

They STARTED sales in 2019, but again, Canada has huge USD reserves, so not a good example. And the example El Salvador - still has gold. And will for a while. Can't believe this is a point of contention.

69 sats \ 1 reply \ @DarthCoin 17 Mar

Maybe they want to build some ASIC miners components with it. For me is the only use case that make sense.

10 sats \ 0 replies \ @kr OP 17 Mar

interesting, though i’m not sure you’d need 1.37 tons of gold to accomplish this

62 sats \ 2 replies \ @Coinsreporter 17 Mar

May be Bukele don't think it's safe to holding all eggs in one basket. But he isn't buying anymore Gold means, he is more inclined towards Bitcoin. For the question why continue to hold Gold? It's obvious. Gold will always shine brighter. It's a monster if an investment product. I believe that people should hold a little Gold as emergency funds. Liquidity against Gold is readily available anytime anywhere.

1 sat \ 1 reply \ @kr OP 17 Mar

Liquidity against Gold is readily available anytime anywhere

i don’t think you really mean “anytime anywhere”… how might he liquidate El Salvador’s gold holdings if he needs to sell it in El Salvador?

Liquidating that amount of gold requires access to international trading partners that want to buy it from you.

It also involves physical delivery in most cases.

0 sats \ 0 replies \ @Coinsreporter 17 Mar

Yes, I agree. I only meant that it's an asset that's popular and it can bring liquidity with a few terms and conditions applied.

0 sats \ 0 replies \ @DesertDave 17 Mar

They haven't sold it yet.

0 sats \ 2 replies \ @moresmarterthanu 17 Mar

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0 sats \ 1 reply \ @kr OP 17 Mar

gold is literally the only hedge against Bitcoin

how did you arrive at this conclusion?

0 sats \ 0 replies \ @moresmarterthanu 19 Mar

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0 sats \ 0 replies \ @quark 17 Mar

To sell it. As an investment to pay some debts I imagine. As for Bitcoin, you don't sell the best asset.