Silver Bars Direct

5 September 2009 291 views One Comment Email This Post

What if the US government were to revert back to the gold standard? At what price of gold would we peg the dollar?

In 1971, the US government had 280 million ounces of gold [source]. Assuming that the sale of gold by the US mint is inconsequential, and that the amount of gold today is the same. How many dollars are there currently in circulation? According the the US Federal Reserve the M1 numbers are currently around $1.654 trillion. (M1 is the number of dollars held by the public as cash plus the amount held in checking accounts). Divide this by the amount of gold the government allegedly possess (280 million ounces) and we get $5,907 dollar per ounce!

Instead of the M1 numbers, if we consider the M2 numbers, we assume $8.3 trillion and arrive at $29,642 per ounce of gold! According the St. Louis Federal Reserve:

M2 is a measure of the U.S. money supply that includes M1 (currency and coins held by the non-bank public; checkable deposits, and travelers’ checks) plus savings deposits, small time deposits under $100,000, and balances in retail money market mutual funds.

As of writing, the price of gold is $996/oz. For an accurate estimate, be sure to check out our gold price and silver price pages.

So why is this calculation important? Consider what’s been happening in the past few years. The US Government has greatly increased its debt and future monetary obligations through waging wars and a trillion-dollar bail-out package. Trillions of Dollars worth of the debt is held by foreigners. The Government can get away with this because the US Dollar enjoys a reserve currency position, which means the Government can just print more money to pay its debtors. However, at some point, our foreign debtors will lose faith in the Dollar causing a major flight to safety, which entails our debtors dumping the Dollar and moving in to other currencies and/or hard assets. Hard assets are precious metals like gold, silver, platinum, storable commodities like oil and of course, real estate.

Historically, silver has traded for about 1/16th or 1/17th the value of gold (excluding the past 2 decades). This probably because silver is about 16 times more abundant than gold in nature.  In a free market economy, silver would trade for 1/16th the price of gold today. However, we don’t live in a free market society.

Almost all of the gold EVER mined is still above the ground and is held in the form of bullion. However, most of the silver mined each year is consumed in various industrial and manufacturing processes. The worldwide supplies or invesntory of silver are estimated at 300 million ounces. Compare this against the 1.6 Billion ounces for gold and you’ll see that silver seems somewhat of a rarer commodity!

If silver were to revert to its historical mean vs gold, it would be trading for nearly $60/ounce. Today the value of one silver ounce is $16.30 which means its price would increase nearly 4 times from here! Make sure you buy silver bullion while its under $50/ounce. By the time it hits $50, you will be dragged in to the frenzied madness and you’ll end up paying a much higher price.

• Jim Rogers: Why You Should Invest In Asia And Commodities Jim Rogers is one of my favorite investment "gurus". Unlike many others, he's made billions from investing as opposed to peddling investment advice and he puts his money where his mouth is. He has recently moved his family and household, lock, stock and barrel to China and believes Asia is......
• Is The Demand For Gold Increasing? I just got an email from a company that I have previously bought gold coins from. They said that the US Mint has temporarily suspended the sale of 1 ounce Gold Eagles but the 1/10th ounce gold Eagles would actually resume. For the first time in a year, 345,000 coins......
• Why $1000 Gold Is Here To Stay Yesterday, the price of gold hit $1005/oz before retreating to just under the $1000 level. The question is whether gold will stay at this level or drop back down again like it did last year. There's a good chance that this time the $1000 level might stick. The difference......
• Is The UK Bankrupt? Daniel John Hannan is a British politician (representing the Conservative Party) and a Member of the European Parliament. In this scathing MUST-SEE speech in March 2009, he tells the UK Prime Minister, Gordan Brown, that the UK has negative equity, has run out of money and that he's a "devalued......
• HyperInflation In The US: Possibility Or Reality? Here's an exceptionally well made video by the National Inflation Association. If you don't believe in hyperinflation (or even if you do) this eye-opening video will entertain and educate you regarding the historical currency devaluation that several other countries have faced and the total break down of economies like Zimbabwe.......

• Morgan Silver Dollar Coin Collecting -> US Coins -> Dollar Coins -> Morgan (1878-1921): 1878-1921, 1885-93, 1894-98, 1899-1904, 1921 The Morgan Silver Dollar is considered by many to be one of the most valuable US coins that you can collect. It’s history ranges from 1878 to 1904, and during its run, it was......
• Gold Eagle Coins Coins & Paper Money -> Gold -> American Eagle Gold Eagle coins are American currency, first released in 1986, that contains the stated amount of actual gold weight claimed in troy ounces, with a silver and copper alloy added to make the coins less soft and more wear resistant. The......
• 10 Reasons Why Gold Should Break $1000 This Year Today's guest post comes from Bruce, CEO of Superior Gold and includes a free silver coin! For many years I was a successful real estate investor. However, I realized that the market was getting very speculative and decided to get out while the going was good. In 2003, I sold......
• 1 Ounce Silver Dragon Bought a 1 ounce silver dragon coin on Ebay. Its a beautiful coin, minted by the Perth Mint in Australia. [As I mentioned in a previous post, I'm a big fan of the Perth Mint's Golden Lunar Series.] Don't know why I bought it. Maybe its because I like......
• Insurance Company Buys $400 Million in Gold According to a recent report from Bloomberg, Northwestern Mutual Life Insurance Co., the third-largest U.S. life insurer, has been buying gold. This is the first time in its 152-year history that Northwestern has purchased gold. According to Northwestern CEO Edward Zore, “Gold just seems to make sense; it’s a store......