Golden Escape Pods
Edgar J. Steele
What is gold really worth today? While the accurate answer simply is whatever someone will pay for it, there are historical measures which indicate that it is seriously undervalued. Could it stay that way? Only if the central bankers are correct in what they tell you about gold and also are correct that economic depression and monetary hyperinflation are things of the past. Even so, the gold market will require ongoing rigging, because there are a great many people around the world who quite simply don't believe the central bankers - and with good reason.
I'm going to go through a quick analysis of the value of gold, one of many ways in which a value can be derived, I might add. It almost certainly will require you to read through it a few times to get the drift, because it is not the point of this article to be an exhaustive treatise on gold or investing, after all. Rather, I wish only to construct an argument for gold being used as a defense against the economic war being waged against us.
By 1945, 63,570 tons of gold had been discovered and mined, worldwide. In 2003, 144,092 tons existed, a 127% increase. Very little gold actually is used industrially or otherwise (as in dental work), unlike so many other precious metals, so most of the gold ever discovered still exists and is sitting in someone's vault.
In 1945, 68% of all gold was in central bank vaults. In 2003, 12% of all gold was in Central Bank vaults.
The total outstanding value of gold outside bank vaults in 2003 was about 100 times the total outstanding value of gold outside bank vaults in 1945.
In 1945, the total money in circulation throughout the world was about $300 billion. In 2003, the total money in circulation throughout the world was about $30 trillion, a one-hundredfold increase, which itself suggests a proper price for gold in the area of $3,500 per ounce (100 x $35).
Expressed as a pro-rata portion of the total money in circulation in 1945, each ounce of gold then in existence accounted for $147.48. Expressed as a pro-rata portion of the total money in circulation in 2003, each and every ounce of gold then in existence accounted for $6,506.26.
Some would call the analysis done at this point and claim that gold is worth between $3,500 and $6,506 per ounce. I am not one of those, some of whom use alternate analyses to derive values of up to $20,000 per ounce.
By the way, some actually suggest that the correct analysis is to divide the total money supply by the number of ounces of gold in central bank vaults, since that represents the extent to which outstanding money is "backed" by gold. In that case, the per-ounce value of gold turns out to be an incredible $54,218.94. However, this neglects to calculate a similar figure for each country with money outstanding, then weight each result appropriately. Some countries, such as America, reportedly have almost no gold left in central bank vaults, though none will allow inspections.
America's Consumer Price Index (CPI) in 1945 was 18. The CPI in 2003 was 183, representing a 10X increase.
America's Gross Domestic Product (GDP) increased by 9X from 1945 to 2003, after adjustment for inflation (CPI).
The world's money supply, expressed in dollars, increased 100X from 1945 to 2003. America's broadest definition of money, M3, increased by about 36X during the same period.
Note that the money supply increased significantly faster than did either GDP or the CPI or, for that matter, America's population, which has doubled.
The Dow increased by 10X during the same period, too.
While American post-WWII productivity increased by about 3X on a per-capita basis, the money supply (M3) increased beyond productivity by a factor of ten, which squares with the CPI increase. When I was a child, those purple first-class postage stamps cost 3 cents, but today they are more than ten times that amount, an external validation of our statistical analysis. I recall today's $1 ice cream cones costing but a nickel a scoop.
In other words, our money has been robbed of 90% of its value in the last fifty years by excessive expansions of the money supply, with most of the loss taking place in just the last 30 years. Meanwhile, the per-capita supply of gold actually has declined by about 40%. What's the problem, you might ask - after all, gold went up from $35 to $330 in the same time period, approximately the amount of inflation. Here's the problem: at both points, the price of gold was being artificially constrained by the central bank, both directly and through its surrogate, the American government.
The real question is what happens to the price of gold if the bank loses control of it and, particularly, if the dollar swoons significantly, as seems to be occurring at the time of this writing.