World Supply of U.S. Dollars vs Gold

What’s ahead for the U.S. dollar? Can’t all prices be figured as a product of supply and demand? The feds stopped reporting the growth in M3, the principal measure of the U.S. money supply, earlier this year. But Adrian Van Eck, who keeps track of these things, estimates that the world’s supply of dollars has increased by \$3 trillion over the last three years. That is an astounding figure. But dollars have become such an abstraction… such whiffs of smoke… we don’t know what it means.

Let’s compare the figure to the world’s supply of gold. Gold stocks grow at about 1.7% annually. If the base of 155,000 tonnes above ground – the figure provided by the World Gold Council – is correct, that means we only have to do a little math to know where we are headed.

Let’s see… there are 28.35 grams to the ounce… and 1,000 grams to a kilogram… and 1,000 kilograms to a metric tonne. If we’re doing the figures right, we end up with an above-ground supply of more than 5 billion ounces… which, multiplied by 1.7% over three years… gives us an addition to the world’s gold supply of about 25 million ounces over the last three years.

In other words, for every ounce of gold added to the world supply over the last three years, the United States has added \$120,000. But wait, we are talking about the world’s total supply of new gold. So, in addition to the new supply of dollars, we have to include the increases in the rest of the world’s money supplies. We won’t even try. Instead, we will guess that, altogether, the foreigners added about the same amount of new currency – about \$3 trillion worth. Which gives us a total of about \$240,000 for every ounce of gold added to the world supply.

What does this mean? We don’t know, exactly. But our guess is that the incremental dollar could be worth less than people think… and the incremental ounce of gold a bit more.

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind Markets and Money.

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3 Comments on "World Supply of U.S. Dollars vs Gold"

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Charles M
Regarding calculations concerning the worth of gold in dollars: Why don’t you divide the number of U.S. dollars in circulation (never published, perhaps not known) by the amount of gold in the U.S. Treasury? It is no less than \$172,000/Toz, and probably much greater. In other words, gold may be a bargain if you’re buying, but when will it appreciate to its true value? Put another way, people who print currencies don’t like competing monetary systems, such as precious metals. So, the value of PM’s is held artificially low. To get some idea of the number of dollars in circulaltion,… Read more »
Guest

Looking at the initial calculation of grams to ounces, it would be more accurate to note that a troy ounce (used to weigh and trade precious metals) is comprised of 31.1 grams not 28.3 grams as in an avoirdupois ounce. This actually furthers the argument that gold is quite a bit more precious than the dollars that will soon be chasing it. Great insight….

Guest
Just read an article (from august 2008) that the world counts about 10 million millionaires (in US dollar terms). That means that they own among them at least 10 trillion dollars. If they wanted to (let’s say they start a club) buy all the gold in the world (155.000 tons, according to this article, which amounts to 4.65 trillion dollars (at 30.000 dollars per kilo, which is roughly 1000 per ounce), they would each have to pay roughly half a million dollars. Their club would then own all the gold in the world, and they would each still be a… Read more »
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