From: glevy@PRATT.EDU
Date: Sat Oct 08 2005 - 09:12:50 EDT
---------------------------- Original Message ------------------------- Subject: Notes on gold From: "Jurriaan Bendien" <adsl675281@tiscali.nl> Date: Sat, October 8, 2005 6:49 am ----------------------------------------------------------------------- The amount of US dollar currency in circulation is probably more than sixty times the value of official US gold stocks. But a currency/gold comparison is not very meaningful these days, in view of the enormous discrepancy between M1 and M3 in the USA (where M3 is seven times larger than M1). Here's the evolution of M3 for the US$ (mid-year, seasonally adjusted, billions of dollars): 2000 6863.5 2001 7666.2 2002 8221.7 2003 8847.7 2004 9293.0 Aug 2005: 9873.9 In excess of US$700 billion in cash is now said to circulate throughout the world (outside U.S. Treasury, Federal Reserve Banks and the vaults of depository institutions). It is said that over 60 percent of this cash is used beyond American borders. http://www.federalreserve.gov/ For data on government gold reserves, see the useful IMF template http://www.imf.org/external/np/sta/ir/colist.htm The US data are at: http://www.imf.org/external/np/sta/ir/usa/eng/curusa.htm#I Obviously, this data does not refer to all the gold in circulation, since an unknown quantity will be *privately* held (interestingly, Roosevelt made private gold ownership illegal in the United States in 1933). A special study made of the private gold stock is here: www.gold.org/pub_archive/pdf/retailgold.pdf The author claims an end-2000 value of the above-ground gold stock of 22,000 tonnes of bullion (bars and coins) valued at about $200 billion, which he notes is peanuts compared to the value of the equity of the S&P 500. But precisely because of this, if only a small fraction of the world's investment capital is suddenly diverted into gold, gold prices can skyrocket (see below). Is a return to the "gold standard" really possible? Obviously this depends on the extent to which total financial claims (or currencies) could in truth be "backed by gold". But in reality, total gold stocks are simply insufficient to back all financial claims or currencies, it can back only a portion of them. Hence, if not in a hegemonic currency, a "value standard" must be lodged either in a "basket" of strategic commodities, or in a mandatory currency coupled with price controls (interestingly, when the currency reform in Germany occurred in 1948, officially 10 Reichsmarks were convertible to 1 Deutschmark, but firms had the right to "estimate" when they chose the value of their own capital; most limited companies profitably converted on the basis of 1 Reichsmark for 1 Deutschmark, thus contributing to the "German Economic Miracle"!) . The world gold council also can often provide useful information about gold: http://www.gold.org/ As regards gold prices, here's some US$ data (compared with movement in US Consumers Price Index, base 1967=100): 1960 $36.50 CPI = 88.7 1970 $37.60 CPI = 116.3 1980 $641.20 CPI = 246.8 1990 $423.80 CPI = 391.4 2000 $272.15 CPI = 515.8 2004 $455.75 CPI = 565.8 current spot price - $472 to $477 ; CPI = 582.8 approx. (for more detail, see http://www.lbma.org.uk/statistics_historic.htm ). However, we really need to know the total trading volumes for gold as well, but data on this is not so easy to get (the weighting of gold in the Dow commodity index = 5.08/100) . The Tokyo Commodity Exchange http://www.tocom.or.jp/souba/gold/ extrapolates these figures: Oct 2005 270 Dec 2005 1,102 Feb 2006 1,881 Apr 2006 4,389 Jun 2006 15,142 Looks like gold is in the lift. "The late economist Robert Triffin explained that there are two ways in which an economy can adjust to excess demand caused by excess financing (money supply growth). An increase in domestic prices is one way. Under certain conditions, however, a current account deficit may "constitute the main channel of adjustment to inflationary pressures and reduce correspondingly the extent of domestic price increases." Triffin also explained that as long as the excess demand persisted, any measures that successfully reduced the current account deficit would boost domestic prices, and any measures that successfully reduced the domestic price level would boost the current account deficit. Only the removal of the excess demand (the excess money) could solve both problems." : http://www.gold-eagle.com/gold_digest_01/milhouse071601.html But maybe there's some new ways to mediate that contradiction... Jurriaan
This archive was generated by hypermail 2.1.5 : Thu Oct 20 2005 - 00:00:03 EDT