We can see that the gold value continues to rise against the dollar but what does that really mean?
An interesting article by Martin Presler shows the true value of gold pointing out that, at the best, if the US reverted to a gold backed dollar then it would be $52,237.96 dollars for a gold backed dollar.
How did he arrive at that extraordinary conclusion you might wonder? Well it is simple enough.
The term for all money in the US is M3. This would include all the currency in circulation, held in various bank accounts, funds, money market funds, deposits, Eurodollar deposits held at all banks and any other loose change. All would make up the M3. However this does leave out the millions of dollars held by foreign banks and euros, or other currencies, held by non US Residents and so forth.
The total of all this money, as at the week ending Feb 13th 2006, adds up to the princely sum of 10,236.3 billion dollars. As he says,
"10,236.3 Billion dollars rolls right off the tongue but it really is... $10,236,300,000,000!"
Now the US government hold a substantial amount of gold in it's vaults. The government claims it is 800 tonnes. Martin Presler claims it is probably closer to 400 tonnes but says lets split the difference and call it 600 tonnes.
He then divides 6000 tonnes of gold by the amount of money, giving 1,706,050,000 dollars per tonne.
With 2240 pounds in a tonne that amounts to 761,629,46 dollars per pound and as there are 14.58 troy ounces of gold in each pound that makes 52,237.96 dollars per ounce of gold!
So, just look at that. If the dollar was 100 percent backed by gold, then gold would have to be 52,237.96 dollars per ounce.
Just how much paper money is out there?
You can look at this two ways. Either gold is worth a lot more than we ever imagined or the paper money we use is worth less than a matchstick on a hot day.
Which ever way you look at it, the value of gold looks set to continue it's rise and it seems fairly safe to buy gold bullion in pretty much any form.