Gold Backing Of The Dollar

Mike Hewitt made an interesting observation recently in his post entitled Ratio of US Gold Reserves to Various Money Supply Metrics.

It is interesting to consider that if everyone cashed in their checking accounts and went to purchase gold directly from the U.S. reserve at the current market rate, all of the gold would be gone after only 17.5% of the cash was redeemed.

If the citizens decided to also cash in their savings accounts, then that figure drops to 3.5%! In other words, the ratio of cash in circulation plus the value of all publically held checking/savings accounts to the official gold reserve is 28.5 to 1.

Though it would be unwise to simply project these ratios onto the current price of gold in order to determine what the price ought to be, they do suggest that gold is indeed undervalued.

As I write this post, gold is priced at $1,126 per ounce. Therefore, for our paper money to actually be backed by gold, as it used to be, and will also be in the future, gold would have to be valued at $32,091 per ounce.


Will gold go this high? Doubtful, but it does serve to show that gold is still tremendously undervalued.


The graphs that follow show how serious this situation really is.


Notice that the reporting of the US Gold Reserves has not changed since the early 1970s. It is speculated that the reason for this is that our gold reserves are long gone, replaced by an worthless pile of IOUs.

The above graph shows just how much money the Fed has pumped out over the last two years. Again, all backed by nothing. The rest of the world knows this and are dumping dollars and buying gold as fast as they can.

What are you waiting for?