Have you ever been in a discussion about gold, when someone blurts out ‘we don’t have enough gold to operate a gold standard!’ We have a standard retort. ‘Oh, that’s interesting. Please tell us how much gold you think would be necessary, and how you calculated it.’
We have never heard a coherent answer to this question. Most people just don’t like gold, and will say whatever words they think will dismiss the monetary question entirely, without actually having to address the issues.
The common answer from the gold community is not much better, ‘We could have a gold standard, if gold was at the right price.’
Here is the typical logic: divide the money supply by the amount of gold. The result tells you the price of gold to fully back the money supply. Let’s first use M1 (we are aware that which measure of money supply to use is debated, but we don’t think it much matters). M1 today is $3.5 trillion, according to the Fred Economic Data published by the St Louis Fed.
Divide this by the amount of gold. Often, this is supposed to be the amount of gold held by the Fed itself, some 8,133 tons or 261.5 million ounces. The answer comes out to $13,400 per ounce.
This post was published at SilverSeek on Monday, July 3rd.