|
PureBytes Links
Trading Reference Links
|
If any major trading nation were to establish a gold standard, the gold
"price" for others would tend to equal all hard currency in print divided by
above-ground gold supply; less a discount for present value of future
production.
If you take U.S. currency of $5 T and divide by the 260 M oz. on the FedRes
balance sheet, you get $19,000/ oz. Of course, there is additional gold
here, in private hands; and there is the discount for future production. New
gold can be produced for what is equivalent to less than $200/ oz. today.
At the same time, some might say you should take the present value of U.S.
obligations - not just the FR notes in print - for the dividend. Guessing
300 million oz. for the divisor and 20 trillion for the debt/obligations you
get an even higher price; over $60,000/oz. before discounting for future
production.
All of this is merely academic hypothesis, however, because as soon as a
government or legislative body announces an intention to establish sound
money via a gold standard, demand for gold delivery will outstrip supply
for so long that prices will be driven by only the wildest of speculative
madness.
It really won't matter how high the price rises, if there is no gold for
delivery; and once the standard goes into effect it won't matter what the
price is in FR notes, because FR notes, no longer being legal tender, will
be worthless. The temporary price peak for gold futures in FR notes is infinity.
Contracts in general, notes, bonds, mtges. etc. will be revalued in units
of the new money, whether gold or silver.
If you take the CPI figures the 1967 dollar is worth 20 cents. That is a
deterioration of 5.5% per year for the past 30 years. Whatever thse CPI from
1913 is it couldn't justify a dollar of over 5 or 10 cents; and some would
say even less, i.e. 1 to 3 cents.
In addition to CPI, one should also take into consideration that under
"normal" circumstances... of free enterprise and sound (commodity) money...
the price level declines regularly by 2 or 3% per year, or at a rate
approximately equal to the rate of economic growth, as a mechanism for
providing the cash purchasing power to finance the increase in commerce and
industry.
Adding 2 or 3% to the CPI of 5.5% produces a range of 7.5 to 8.5% in dollar
value deterioration. Taken back to 1913, the first official year of Fiat
money yields a current value of 1 cent.
Therefore, one could say, a gold oz. of $20 value in 1913, would
presumably level off at about 100 times that amount as supply meets demand.
$2000 gold would also equal official FedRes liabilities, nearly $500 B
divided by official gold on hand of 250 M oz.
To add to this excercise similar calculations should probably be applied to
all hard currencies and then divided by known world gold supply.
It wouldn't matter what standard were established. For example, the U.S.
dollar is supposed to be 1 ounce of Silver; and 1/ 42nd ounce of Gold;
according to the Constitution. A standard has to start somewhere, and this
might be as good a place as any for Americans.
The interesting question is guessing how much price levels in general will
decline.
|