If the US were to go back on the Gold Standard, what would be the price of gold?
I have no idea how to go about figuring this out. And no, I don’t really expect it to happen, at least not anytime soon.
I don’t think anyone can predict what the price would be, since doing that would cause a worldwide economic disaster. It would wreck America economically, and America would drag down the rest of the world in its wake. Predicting the price of a commodity in the wake of such a disaster isn’t practical.
I’m not really looking for discussion on the wisdom of such a move. The discussion no longer seems confined to strict Libertarian circles; I’m hearing Republicans giving it some voice … so I figure there is some small possibility it could happen.
When FDR took us off the gold standard, they set a price. There must be some method to come with a number.
How much gold does the U.S. currently possess?
Couldn’t you do something along the lines of “divide the value of all the US currency in the world by the value of all the US gold in the world”?
Say (pulling numbers out of the air) there’s 5 trillion US dollars in existence, and there’s 100 000 tonnes of US gold in the world. Then you could define each tonne of gold as being worth $5 trillion / 100 000, or $50 million. And therefore each gram of gold is worth $50.
Too simple?
According to the chart on this page, the U.S. currently has 8133.5 tonnes of gold.
If you only want to talk about cash, then there’s $829 billion of US currency in circulation, mostly overseas. There are other measures of how much money a country has: for example, the “M2” is the amount of cash plus deposits in checking or savings accounts. That’s about $10 trillion.
Incidentally, at today’s trading prices, all the gold ever mined in the history of the world has a value of… wait for it… $10 trillion.
That same cite says the US holds 8,000 metric tons of gold, which at those same rates would be about half a billion dollars worth.
That $10 trillion 'coincidence" is very interesting. I know next to nothing about the M2 an money supply and such.
Dividing $829 billion by 8233.5 tons of gold (figuring 32150 ounces per ton) gives $3,170/oz. So should I hang on to the gold I bought between 1999 and 2003? Or is it more complicated than that?
Ok in all seriousness, there’s no way to actually re-tie the value of the US dollar to gold, is there?
I don’t see why they couldn’t just say, “We’re putting out a new US dollar. It is worth 1 gram of gold.” They’d probably have to issue a new series of banknotes, though, just to make things clearer. Then you’d have to trade in your old dollars for new ones, with the exchange rate reflecting whatever the going price for gold in old dollars is.
(I misstated something in my previous post: the $10 trillion figure on the value of all gold ever mined is not at today’s trading prices, it was for last year’s trading prices.)
The government absolutely does have the authority to tie the value of the dollar to gold. It’s part of the constitutional powers of Congress to regulate the value of money. Congress could legally tie the value of the dollar to the price of weed if it was so inclined, and could constitutionally fix that value in any way it wishes. There’s no magic formula for how that power might be used (like dividing the value of notes in circulation by however much gold we have); Congress has plenary power to regulate the dollar how it wishes. ETA: that doesn’t mean at all that it is a good idea.
However, let’s get real. This isn’t going to happen. One would be horribly served by making financial decisions based on the US returning to the gold standard. Here’s another tip: if you read something in the papers about some crank politicians with a plan to restore air-ship service between Siam and Formosa, don’t run out and buy stocks in the helium and rubber tree industries, either. There’s no sense in trying to profit from ideas that are both anachronistic and terrible.
Sure there is. The easy way to do it is to announce that as of Somedate.Sometime, the US treasury will commit to always buy gold at $someprice, and always sell gold at $someprice+X, “X” being a small clerical fee. So if you bring $10,000 Federal Reserve Notes to Fort Knox, they will give you one ounce of gold, and if you bring one ounce of gold to Fort Knox, they will give you $9,900 Federal Reserve Notes.
This could be done without issuing any new currency, and it ties the US dollar to gold at a certain level. And if the value of the US dollar falls relative to gold, a bunch of people will head to Fort Knox to buy gold which will reduce the supply of US dollars until the value of the dollar matches the value of the gold. And when the value of the US dollar rises relative to gold, people will head to Fort Knox to sell gold which reduces the supply of gold until the value of gold matches the value of the dollar.
And so, we have a stable dollar that is always equal in value to gold. But notice the cost of this system–it requires constant exchanges with arbitrageurs to keep the value of the dollar constant. It’s more helpful to think of this the other way–the US government commits to keep the price of gold fixed, and whenever there’s too much gold they’ll buy it until the value rises, and whenever there is too little gold they’ll sell it until the value drops. Well, the value of gold will be fixed at a certain dollar value, but this requires constant payments to gold speculators to keep the value of gold (in terms of dollars) constant.
Of course, in the real world back when we were on the gold standard, your dollar was ostensibly worth a certain weight of gold, but you couldn’t actually trade your dollar for gold. Owning gold bullion was illegal, because the government didn’t want to shovel money into the hands of the gold market. And so you had the laughable fiction that a dollar was worth 1/35th of an ounce of gold, despite the market price for gold being much higher, except you could only buy gold for jewelry.
Those who have the knowledge to accurately judge the true value of such things will have a major advantage in the marketplace over those who buy and sell based on the perceptions of the general public.
You’re talking about the situation after FDR took us off the gold standard.
It was part of Ron Paul’s platform. Not part of the republican platform. Ron Paul is a republican in name only.
My question remains not is it likely nor whether it is a good idea. My question is IF it happens, how does one go about figuring the correct $/oz?
The only sensible thing is to pick a day, and peg the dollar to the market price for gold on that day. Why would you do anything else? If you’re not going to do that, you’d be better off creating a new currency and calling it something different. You might as well have your base unit be equal to a gram of gold, which is worth something like $50 nowadays. Smallest practical unit would be the milligram, which would be something like five cents.
As I complain about in each and every “gold standard” thread on the dope, if you don’t like Federal Reserve Notes, you can take your worthless scraps of paper down to any coin shop and exchange it for any amount of gold you like. Nothing is forcing you to keep fiat dollars if you don’t trust them. We have a free market in gold, and if you don’t trust the Federal Reserve to keep the value of the dollar then you can just buy commodities like gold. People with really valuable portfolios don’t worry to much about the exact value of the dollar because only a small fraction of their savings is denominated in dollars. If you want to keep track of the value of your investments by using a gram of gold as your unit of account instead of the US dollar, then feel free.
The wisdom of the move affects the price. I suspect the actual answer might well be “gold is worth almost nothing, these days people barter with food and ammunition”.
Again, the correct dollars per ounce would be dictated by Congress. There is no correct formula for how much a dollar would be worth in gold: it is worth whatever Congress says. That’s right there in Article I, section 8 of the Constitution.
A milligram? Back in my day, a nickle was worth an entire gram of gold, which was what it cost to buy an onion for my belt. Of course, if I was going on a date I’d always toss in a couple more pennies and splurge for a shallot. A Saturday Shallot Special, we’d call it, cause Saturday was the only night the mill was idle for maintenance. The leather drive belts would start to squeal around Thursday, and we’d joke that the second shift was chasing pigs again when the whistle blew.
I’m pretty sure that’s what goes through Ron Paul’s mind when someone mentions gold.
Indeed it is. But Congress would not just generate a random number. There would have to be some method to determine a realistic relationship.
Just announcing that on some certain date at some certain time the value would be fixed at the then current market price of gold is … simply unworkable, if you think about how a market works.