Gold Versus the Dollar

The U.S. owns about 258 million Troy ounces of gold that is of course mostly stored in Ft. Knox, and that gold in 2015 is worth about $310 billion dollars. That's a relatively paltry sum when you think about it, it's only about 1.7% of our current $18 trillion dollar national debt.

Gold increased in value from about $400 per Troy ounce in 2005 to about $1,200 per Troy ounce in 2015 or about three times (3X) in 10 years. Our national debt however went up from about $500 billion dollars to about $18 trillion dollars or about thirty-six times (36X) over the same period.

Doesn't it bother you that gold has increased so little over the past 10 years while our national debt has increase so much over the same time period? Trillions and trillions of paper dollars or just electronically created dollars and the value of gold has hardly moved? Does that make any sense?

It has been argued that the value of gold can not be directly related to dollars but only to its relative value in goods. An example often used is "if a Troy ounce of gold purchased a suit in 1920 the same quality suit could be purchased for an ounce of gold today." I'm sorry, but in my opinion that is a ridiculous comparison. Gold is valued on a supply and demand basis and when there is anxiety about the monetary system money gold prices take off. Gold is one of the few things that is difficult to create. You can't just decide you want to "create" a trillion dollars worth of gold, it just doesn't appear.

As long as gold is seen as a commodity, a material that makes beautiful jewelry, and there is no instability in the monetary system, gold's relationship to currency will remain disconnected. Gold is however scarce, that 258 million Troy ounces of gold the U.S. owns may grow with mining but compared to government dollar creation it's a very small increase.

China, in its ongoing attempts to dislodge the dollar as the favored reserve currency, is said to be hoarding gold and not reporting its holdings. Maybe China is one of the only countries that recognize that gold is a better foundation for money than a printing press. The dollar has defied logic by increasing in value in relation to gold based on nothing more than faith in the government. The question is how long can our increasingly monstrous house-of-paper and debt maintain that faith before gold again becomes a form of money.