Tuesday, September 22, 2009

Fun with Numbers III: Returning to a Gold Standard?

I was thinking this afternoon about what would happen if the US returned to a gold standard. The most obvious thing is that the value of gold per ounce would skyrocket...

Right now gold is "pegged" at around $1,000 an oz.

If we returned to a gold standard now, to determine the dollar value per ounce of gold, we would simply divide the supply of money by the US supply of gold ($X/Y ounces). It's quite clear that there would be many times more of the amount of dollars per oz. of gold available - much much greater than $1,000 per oz. But how much more?

A quick googling says the US reserve is 282,191,696 ounces of gold (8,000 tonnes). So if we set a gold standard again, based on the current M2 money supply - $8.2977 Trillion - that would be about $29,404.47 per ounce of Gold.

Just for fun: As late as 1971, the price of gold was fixed to roughly $35.00 per ounce.

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