Can Gold Replace or Prop Up a Crumbling Monetary System?
Much has been whispered, postulated and debated over the decades regarding gold’s potential and place in a new global monetary system. Why? Gold has had a long monetary history, whereas fiat currencies, even the strong ones, have not survived the tendencies of rulers and governments to debase their currencies after insurmountable debt accumulation to fund their expanding programs, be they military, social or other.
And in recent years, fears have increased steadily over the parabolic increase in sovereign indebtedness and the concomitant steady erosion in the value of world currencies, with particular focus on the US dollar, since it is (still) the world’s main trading and reserve currency.
But a little perspective is in order here (all in $USD):
World Stock Exchange Capitalization : $130 trillion
US Stock Exchanges alone : $62 trillion
World Sovereign Debt : $100 trillion
World M2 Money Supply : $123 trillion
US National Debt : $38 trillion
US M2 Money Supply : $22.3 trillion
US Federal Annual Spending : $7.4 trillion
USD Cash Notes in World Circulation : $2.4 trillion
Value of Supposed US Gold Reserves : $1.1 trillion
Yes, look at that last figure! The vaunted US national gold hoard, the biggest in the world, is only valued at today’s $4200 USD per ounce at a paltry $1.1 trillion USD. If sold today, that wouldn’t even pay for 8 weeks spending by the US federal government.
A quick perusal of the above table reveals that current gold/silver valuations are relatively insignificant compared to money in circulation, stock and bond valuations, national government annual spending, etc.
So, what about all the gold that has ever been mined? Well, that is about 7 billion troy ounces, or about $29 trillion USD at $4200 USD an ounce. But about 45% of this gold is estimated to be in jewelry. Only 17%, $5 trillion USD is estimated to be held by central banks - also pretty paltry.
The problem then is this: if gold is to become a significant player in the current or future monetary system, its value has to be much, much higher than today’s $4200 USD a troy ounce.
To conclude, I see two outcomes:
1) Gold increases in value by another 10 to 100 times! to facilitate a future major role.
OR
2) Gold will not play any major role and other alternatives emerge with gold prices continuing to meander, jumping and falling as they have in recent decades, based on inflation, relative monetary tightness/looseness, geopolitical concerns, flights to safety, etc.
