Money is a complicated subject, and subscribers have lots of questions. I usually answer via email or in a post’s comments section, but some questions recur often enough to warrant a monthly Q&A post. This is the first in that series:
Question: US gold reserves are only worth a fraction of GDP. Does that mean there’s not enough gold to back the dollar in a future gold standard?
The Answer: No. There’s a gold price that makes it work.
Background: What Is A Gold Standard?
A “gold standard” is a monetary system in which a nation’s currency is backed by (or defined as) gold held by the central bank. If the amount of currency in circulation is “40% backed by gold,” that means the value of national gold reserves, at the official gold price, equals 40% of the currency in circulation........
Why We’re Gold Bugs
Two things make this a compelling investment thesis.
A monetary reset is now inevitable. US government debt has risen to levels that make normal interest rates impossible because the resulting interest payments are debilitating (see below). But a return to zero or negative interest rates will, as we discovered earlier in this decade, cause inflation to spike to catastrophic levels.
So the world’s central banks are out of palatable options, and a crisis is coming that will reshape or replace parts of the financial system.
The most obvious reset — a return to a gold standard — requires a much higher gold price. That makes gold (and silver, and the gold/silver miners) seem like bargains, which is why so many smart people are loading up on commodities.
