Let’s start with an estimate of how much gold is out there, courtesy of Kalo Gold and the Visual Capitalist:
Chart: How Much Gold is in the World?
Before we address the price, it is interesting to note the comment above that underground supplies will be depleted in less that 18 years. 😱
Ok, so let’s start out with their estimate of roughly 255,000 metric tonnes. That equates to about 9,000,000,000 troy ounces. One estimate frequently used is to take the outstanding U.S. Treasury debt of $34 trillion, and then divide that by the 8,133 tonnes (286,883,133 troy ounces) purportedly held by the U.S. That gets us to $118,500 per troy ounce. Quite a jump from the current price. However, one estimate for global debt is $340 trillion. That get’s us to $1,185,000 per troy ounce.
I’ll discard that number right off the bat. If I were King, for starters, the first thing I would do is write off the reported $12 trillion on the U.S. Fed’s balance sheet. It’s funny money anyway. We owe it to ourselves. For those old enough to remember, let’s quote from Saturday Night Live’s Gilda Radner’s character, Roseanne Rosannadanna….“Never Mind”. That drops the debt to a more manageable number. 🤣. Who knows how much of the total world debt is just funny money and long gone? So I doubt if we need to start with an estimate of over $1 million.
It’s unlikely it is $1,185,000. If the U.S. declared the price of gold to be that high, gold would come forward for sale in large quantities from every holder with a brain. I know markets are manipulated, but such a dumb move would actually crash the new price as a renewed market for gold developed. In other words, we can’t just use the U.S. holdings for the calculation. We have to use total global holdings versus total global debt as a starting place in my view.
We know that the clearing price for gold is not $2,055 per troy ounce. I doubt if it is $1,185,000. It really is impossible to say at the moment as there is very little transparency as to net aggregate global debt.
We can make these calculations as the vast majority of gold ever mined is still with us. That is not the case for silver. Because silver is used in small quantities, much of it is flushed down the drain or forever sitting in garbage dumps. This reinforces the belief that silver has a much greater percentage upside potential once true price discovery returns. Not only do we have an historic use for it as money, but there are no good substitutes for silver in so many critical activities that define the modern world.
Another factor would be an actual strengthening of the U.S. dollar’s value. The U.S. is still a very rich country. It was recently reported that the U.S. is now the top oil producer in the world. Factor in other immense natural resources, farmland, consumer markets, etc., and “full faith and credit” might make a huge comeback. This would moderate the price needed to clear the market relative to gold. The current situation is a mess, but there is always the chance that the U.S. begins to right the ship.
There is another wild card for those willing to stretch their mind. In the book Gold Warriors, a story was told that suggests the world gold supply is vastly greater than thought. Perhaps as much as 1.5 million metric tonnes. I doubt if that additional supply will ever see the light of day, but the impact would be monumental.
Generally price should be marginal cost if I remember my college microeconomics.
for kicks I am going to go with the saying: 1 ounce will always buy you good sandals a 'suite' and a nice dinner. Lets estimate that today to be 2000. Though it could be as much as 20k depending on the absurdity of what you buy.
I want to look at that number through the lens of population growth from the year 200ish ad. Which was around 200 million people world wide. Also , factor in the efficiency of pulling gold out of the ground since then. And conversly take into account the scarcity---peak gold.
population has grown from 200 million to 8 billion. that is 40x. difference. Not sure how to factor in the mining capabilities and peak gold. Though if peak gold outweighs mining technology it could amplify the difference. To be conservative lets say it brings the difference down my half. so 20x.
With this crude math I am saying that population has out paced gold production by x20.
so the current fair price would be 40k. All prices being unchanged. I have heard estimates of 80k, infinity (basically means the dollar is dead)
A little gold day dreaming.