The True Price of Gold

[syrakusos]

Gulch8's links to the GATA videos brought me to this calculation.

In my reply to one, I cited the US Treasury Gold Report from December 2012 here:

http://www.fms.treas.gov/gold/current.html

If you do the maths, you see that they evaluate gold at $42 per ounce.

$11.04 billion worth of 261.5 million troy ounces.

But for one thing, the market price of gold today is $1659. The 261.5 million troy ounces are worth about $434 billion, a bit better. However, the US Public Debt - dollars outstanding - is $16.5 TRILLION. $16.6 * 10^12 / 261.5 * 10^6 = 6.3 * 10^4 making the actual price of gold in US Dollars about $63,000 per ounce.

By comparison, the Bundesbank holds "3,396.3 tonnes of gold" (International Business Times story here). A metric tonne is 1000 kg or 1 million grams. So their 3.4 billion grams at 31.1 grams per troy ounce is about 100 million ounces. Nice stack. (The story above comes from the fact that the Bundebank inventories in Paris, London, and New York were being audited. So, do your own browsing to guess their actual inventories.) BRD public debt is about $2.5 trillon. (Again, pick your guesses from the mainstream media.) That comes to about $40,000 per ounce (payable in euros, of course).

When the numbers get that wild, the order of magnitude guess is the best we have.

[Peter]

I considered buying gold a few months ago. Since then it has gone down by a hundred bucks. Wayne Rogers on Fox said he will not be doing any investing in anything until March or later. He has a 'shit will hit the fan' theory.

Peter

[Dglgmut]

Like Doug Casey says, gold and silver are not investments, they are assets.

If, however, gold and silver become the basis for a new international currency, the increase in demand for gold and silver should also increase their market value.

Right now, the market value of gold isn't much different than it was when gold was a currency, however silver has become substantially less valuable in that regard, and could potentially explode to a rate more consistent with its rarity in relation to gold (about 1/5th the rarity).

If there was a free market of currencies, what would back the currency people trusted most and therefore was chosen to use for international exchanges? Other than a rare metal, that has applications in electronic production and other subjectively desirable qualities, what would back a successful currency?

As innovation continues, raw materials will become more and more valuable, so I think currency will likely be backed by various metals as long as we have competition between currencies.

[syrakusos]

Most of the world's gpld production goes for jewelry.

About 78% of the gold consumed each year is used in the manufacture of jewelry. here

Above ground stocks are 50% in jewelry and only 36% in public and private "investment."

"Jewellery consistently accounts for the majority of gold demand. In the 12 months to December 2011, appetite for jewellery amounted to around US$99.2 billion. India is the largest consumer in volume terms, accounting for 29% of demand in 2011. Indian gold demand is supported by cultural and religious traditions which are not directly linked to global economic trends..."

http://www.gold.org/investment/why_how_and_where/why_invest/demand_and_supply/

Curbing gold demand as panacea for economic ills

not a good sign
MC Govardhana Rangan, ET Bureau Jan 9, 2013, 10.26AM IST

One of the reasons why foreign exchange is diverted to illegal channels is the illegal import of gold. It is time we took a bold step to recognise the realities of the situation and legalise the import of gold." Finance minister Manmohan Singh, February 1992. Fast forward two decades...

"Demand for gold must be moderated... We may be left with no choice but to make it more expensive to import gold. The matter is under government consideration." Finance minister Palaniappan Chidambaram, January 2013.

Times of India here.

Traders to lose heavily as India hikes gold import duties to 6%

Author: Shivom Seth
Posted: Monday , 21 Jan 2013

Mineweb here

[GALTGULCH8]

You all know that Ayn Rand wrote book reviews of the works of Ludwig von Mises in her The Objectivist Newsletter 1962-1965. The founder of the Austrian School of Economics was Carl Menger who was an academic who set out to discover the laws of the marketplace when the government did not intervene in economic affairs rather limited its role to making sure there was no initiation of force or fraud which implies that the currency was sound.

Given that all the central banks in the world today are influenced by politics and are currently striving to reduce the purchasing power of their own currency in order, presumably, to enhance their own exports. By printing up more units of paper this also enables their governments to have more money to spend than mere tax revenue provides.

The U.S. Dollar is designated as the world reserve currency which means that in order to purchase oil from Saudi Arabia one must convert another currency into dollars first. Given the realities of today's world it is widely understood that the dollar is losing purchasing power so there is an inclination to have another currency take the dollar's place to be the reserve currency. In fact China is going to back the Yuan with gold according to a recent announcement of the World Gold Council.

Demand for US dollars will implode if that happens. Is the US in a position to back the dollar with gold nowadays? Does it have enough gold on hand to do so? Nixon closed the gold window when DeGaulle demanded repayment of debts to France in 1971.

Although the official US National Debt is $16 plus trillion dollars it does not take into account the so called unfunded liabilities which are growing daily as 10,000 US citizens attain eligibility for Social Security and Medicare. This is estimated to require additional expenditures over the next decade and beyond as the Baby Boom cohort reaches retirement age exceeding 100 or 200 trillion dollars.

Given this looming monumental expense it is impressive how cool our president is in his apparent lack of concern for such things as the deficit and the national debt. He casually goes on his manic spending spree seemingly obliviousness to where the money will come from to pay the bills.

One might consider that he will not be in office when those bills come due as is usually the case with politicians. But there are signs that his supporters have the intention of amending the Constitution in order to repeal the limit on presidential terms so he might actually remain in office for a very long time.

In the meantime the printing presses keep rolling out enough to purchase $85 billion dollars worth of US Treasury BIlls and mortgage backed securities each month by the Federal Reserve System, which amounts to over one trillion dollars a year with no end in sight.

Professor Antal Fekete is a mathematician who became interested in monetary matters and has written extensively on the subject and the history of gold and silver. His writings are as lucid as the works of the Austrian economists with an erudition which requires that one be in full focus. You can find his work archived at www.professorfekete.com and I recommend you explore it.

He does suggest how gold can find its way back into our out of control system which is worth knowing about.

http://www.professorfekete.com/articles/AEFCutTheGordianKnot.pdf

Gold has no "counter party risk meaning that it is an asset which can retire debt once and for all. Payment in dollars does not retire debt in the sense that dollars can and are being inflated and lose purchasing power.

In addition, dollars actually are loaned to the govt by the Fed and represent debt. The government comes by the dollars by issuing US Treasury Bonds in return for the dollars it receives. The Fed puts the Treasury Bonds on its balance sheet and must be repaid plus interest for the dollars it used to buy the Bonds.

The book to read regarding the Federal Reserve is G. Edward Griffin's The Creature From Jekyll Island

One friend of mine is concerned that a way will be found to extract gold from sea water which would cause the value of gold to plummet but I think this is exceedingly unlikely to occur.

Those in the business of selling gold and silver naturally rally advocates to write about the prospects and the positive outlook under our present circumstances. New articles appear daily at such sites as www.kingworldnews.com where those in the know in the field are interviewed at length. www.goldsilver.com also publishes new articles daily and has the stuff to sell.

www.goldseek.com and www.silverseek.com also cover the territory.

Not to mention the fact that these markets are being manipulated to keep the prices down which also drains any excitement out of the markets for gold and silver discouraging new buyers. The purpose is to cover the debasement of the dollar by the government.

Those who engage in the kind of nonsense such as naked short selling in the paper future's markets are free to do so, free from prosecution for unethical market manipulation by the very government supposed to prevent such manipulation.

It is FASCISM but rarely identified as such.

GG

[syrakusos]

The Islamic Dinar is a specific weight of 22k gold (917.) equivalent to 4.25 grams.

[A little more than a US Quarter Eagle $2-1/2 coin of 4.18 grams .900 fine and a bit less than the $3 "Princess" 5.015 gram .900 fine. - MEM]

The Islamic Dirham is a specific weight of pure silver equivalent to 3.0 grams.

[Like half of a US 25-cent "quarter dollar" i.e., 6.25 grams .900 fine divided by 2. A US 10-cent dime is 2.5 grams .900 fine. -- MEM]

http://www.islamicmint.com/dinar_dirham/index.html

"In other words our attachment to gold and silver is not something ephemeral and which will be supplanted by paper [money] – it is a part of our fitra, our natural make-up. To deny it is to deny this natural love for it. This appetite for it is tempered – and purified - of course by the payment of part of it in zakat. This purification can only take place if gold and silver are freely available in the form of gold dinars and silver dirhams."

http://www.islamicmint.com/dinar_dirham/articles/legalsources.html

[Brant Gaede]

Gold could be a transitional hard currency from one fiat currency to the next. Wealth held in current currencies will be destroyed. Governments and central bankers will not give up their money monopolies. Thus there will be massive debt defaults, both public and private. This ironic deflationary destruction of money and economic paralysis will almost instantly be followed by the realization that the dollar is next to worthless. The sequence of moderate but quickening inflation/bond value destruction/recession-depression may, take up to a generation to play out followed by a new currency secured by various federal assets, assuming no general political disintegration admixed with a horrible war.

--Brant

get out of Dodge before your country "needs" you (and your children)