Valuing gold against the money supply
One of the most recognised ways to value gold is to calculate what gold prices should be if gold where used again to back the money we use. With today’s money printing and central bank intervention, smart investors are thinking ahead to new monetary systems which could well include gold.
Previous gold standards have operated on a 20 – 40 per cent gold backing, with the Classical Gold Standard of 1870 – 1914 averaging a 25 per cent gold backing.
When valuing gold against money, the most common method is to value gold as if it were backing the world’s reserve currency, the US dollar. Use the sliders above to see what the gold price per ounce could be today if the US dollar was backed by gold. You can choose which measure of money supply to use, and how much you want to back the dollar with gold. You can chose to back the money supply by over 100 per cent, as in the dollar crisis and gold mania of 1980 US bullion reserves were at one time worth over 1.5 times US money stocks.
To learn more about the price of gold, money and metallic standards, read up in our Comment and Analysis section.