The real value of gold - $52,831 an ounce?
In terms of US dollar circulation and US gold holdings, to make the dollar convertible into gold would mean a gold price in excess of $50,000 an ounce.
Posted: Thursday , 22 Jul 2010
In a rather convoluted article on the real value of gold GATA's Adrian Douglas, writing in www.marketforceanalysis.com has calculated that in terms of U.S. dollar convertibility, the real price of gold now stands at $52,381 an ounce!
In producing this figure Douglas goes back to President Nixon's ‘temporary' removal of the convertibility of the dollar for gold in 1971, when the U.S. money supply was valued at $35 an ounce, to the current money supply/price situation.
Today, Douglas avers, with $13.789 trillion in circulation and a gold price of around $1200 an ounce, if one wanted to return to a gold-backed dollar, the U.S. government would need to hold 11.5 billion ounces - it actually admits to only having 261.5 million ounces (although some believe it may in reality hold even less). Thus in terms of simple mathematics the gold price - to make the dollar convertible again, would have to be the aforesaid $52,381. And, with the U.S. money supply growing by the day this figure should probably actually be even higher already.
For those who look to a return to the gold standard as a solution to global economic ills, this is the kind of figure at which gold would need to be revalued - a gold bug's dream and financial disaster for short sellers - and which is thus, in reality, almost completely unlikely to happen. But it does give a pointer to the real devaluation of the U.S. dollar - and other currencies too - since the Nixon removal of the direct tie.
For those who see this effective reduction in value of the U.S. dollar as an actual pointer to where the gold price is going, they may be living in cloud-cuckoo land - perhaps in the same part of the virtual world that looks for the gold:silver ratio to return to around 10:1. Even so, like the current gold:silver ratio it does suggest that current valuations for both metals are still a long way below where they perhaps ought to be and may ultimately end up. Yet another bullish indicator for precious metals.