Wednesday, December 14, 2016

At the normal historic 10:1 ratio, gold should be at over $9000 and silver over $1000 to backstop current debt and money supply

As of Nov. 30, the U.S. Department of the Treasury claims in their monthly report that they have a total of 261,498, 926 ounces of gold contained in bullion, coins, blanks, and miscellaneous products.


In addition, the national debt for the United States is approximately $19.8 trillion as of Dec. 1, with $1.48 trillion of that being physical currency in circulation.

Yet the power of the U.S. dollar being the recognized global reserve currency is based upon its being backed by gold, as determined back in the 1940's during the Bretton Woods conference.  And despite the fact that the U.S. Treasury closed the ability for other nations to exchange dollars for gold when former President Richard Nixon closed the 'gold window', it did not stop the caveat that the dollar must be tied to gold in some capacity.

Ie... this is why the Federal Reserve holds reserves in gold even today despite the deception that Fed Chairmen such as Ben Bernanke gave to Congress and the American people that gold is no longer money.

So with this in mind, what should the real price of gold in dollars be today to backstop the current debt and monetary expansion that exists in the global economy?  And just as important, what should the price of silver be if allowed to reside at its historic 10:1 ratio to gold when the manipulation of the metals finally ceases.

For the reported amount of gold the U.S. is believed to hold, the current dollar price to backstop $19.8 trillion in debt would set the price at $75,717.  However, as most of the debt held domestically and offshore is in Treasury Bonds rather than physical cash, let's break it down instead to what the value of gold should be for the amount of actual currency in circulation.

$1.48 trillion / 261,498,926 = $5659 per ounce.

Yet these number are also limited as they reflect simply the bare amount of currency in circulation, but not representing all money used in financial transactions (electronic banking).  So for that we need to look at an approximate number, which is calculated to a relative degree of accuracy by the Debt Clock website, which estimates the current monetary base as being over $3.6 trillion.

$3.61 trillion / 261,498,926 = $13,820 per ounce.

Over time the expansion of the dollar monetary base has become extremely convoluted since its recognition as the global reserve currency.  And this is due to the fact that not only are dollar denominations used as currency, but also bonds and derivatives are considered by many to be as good as money.  So with that in mind we could probably safely put the true price of gold to be somewhere in between the reported amount of dollars in circulation, and the estimated total amount of dollars used between cash and fractional electronic banking.

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The invisible hand of the markets will always eventually push asset prices back to their true value, as manipulations can only be done for a finite period of time before they cause distortions elsewhere that lead to financial calamities... as we are seeing right now in the monetary distortions occurring in both India and Venezuela.

So how long can the government suppress gold and silver prices to protect their dollar expansion, and keep the true price from breaking through in the markets?  No one really has an answer to this but historically, no fiat currency system has ever survived to 50 years of use, and we are now within the final five years of that mean.

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