Physical Gold

If (as suggested by Wikipedia) about 10 Billion ounces of gold have been mined in recorded history, the value of all the gold in the world at $ 1,300 a Troy ounce is about $ 13 Trillion dollars. US Gold reserves are only about 8,134 tons X 29,167 Troy ounces per ton = 237.2 million Troy ounces of gold. The value of US gold at $ 1,300 an ounce is $ 308.4 billion dollars.

Relative to our national debt of about $ 22.2 Trillion dollars (and growing), the value of the gold held in US reserves is only about 1.3% of our national debt and all the gold ever mined in the world wouldn’t even come close to paying off our national debt.

Do you think there is something strange about the fact that there is no relationship between the insanity of our debt and the value of gold? Sure, gold moves in a world market but the fact that its price is detached from a consideration of the size of our debt means the that gold’s current price is arbitrary.

The fact that our national debt is exploding and gold is at the same price it was 20 years ago makes for great TV advertising. How can gold not be worth more when the dollar is being weakened by all of that debt?

If you consider the fact that there is little or no control over our national debt, student debt or other private debt, and that we are in a ongoing spending spree even though there is a “conservative” government, and the fact that there is an increased risk that our fiat currency will fail, gold is inherently a lot more valuable than its market price implies. We double or triple our debt over 10 years and the gold price doesn’t significantly move? It doesn’t take an economist to figure it out, gold prices are controlled and they bear no relationship to reality.

Yes, gold has in the past been used as currency in the US, Britain and other countries, but its price has also been controlled by governments. Today gold prices are in the opinion of some based on its production costs, oil goes up and gold production costs increase, so the price of gold goes up. What happened to a price based on supply and demand? That went out the door for gold years ago.

The government steps in to control the upward movement in gold prices via interest rates and other contract manipulations. Holding gold has a opportunity cost, you don’t get an investment return on gold until you sell it. No 5% or 10% annual interest for gold hoarders. So you keep gold prices down and investors dump their gold in favor of currency. It works, but now you have gold valued the same as it was in 2010.

If you have been around for a while you know what happens when gold is allowed to move up significantly, you can’t buy an ounce from anyone anywhere. They “turn off the spigot” and you can sell all you want to but you can’t buy. All of the dealers go into the “we can’t get any gold” mode. That’s not a real marketplace, it may be a “controlled marketplace” but it’s not what you imagined you would have when you got into the gold market.

The reality of gold ownership is that if you invest you have taken sides against governments and the central banks, the biggest manipulators of money on the planet. So you should maybe consider gold jewelry or collectible gold coins because that way you can enjoy the gold while its price is held in place by those who think the best thing they can do is not let it float freely in an open market.

The interesting thing about investment in metals is that there is a chance that all the manipulations of it may still not be enough to hold it in check if something truly significant happens. Something like a default, debt restructuring a “Jubilee” or socialism if you like. Controlling gold may work today, but if you shake the monetary box control may go out the window.

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