How Much Dollar Is Worth If Backed 100% By Gold

You can laugh it off, you can scoff at it, or you can take a mental note of it.

"A Tremendous Secret" (John Rubino, 7/15/09 Goldseek.com)

The article talks about that rumor about bank holidays in fall in which all the major currencies in the world "reset" (get devalued) against either gold or basket of currencies or IMF's SDR.

So, I decided to do some simple calculations to figure out the magnitude of devaluation if it were to occur vis a vis gold, and if the new devalued currency was to be backed 100% by gold.

Step 1. Gold reserve of the United States

I assume that the gold vault at Fort Knox contains what the government says it contains. According to Gold Council, the U.S. has 8,133.5 metric tonnes of gold as of March 2009 (from Wikipedia.org).

• 8,133.5 tonnes = 286.9 million ounces

Physical gold is trading at $939 an ounce today. So the U.S. gold reserve is currently worth:

• 286.9 million oz x $939 per oz = $269.4 billion

Step 2. Total amount of "money" in the U.S.

Here I have a problem. Which "money"?

• M0: The total of all physical currency, plus accounts at the central bank that can be exchanged for physical currency.
• M1: The total of all physical currency part of bank reserves + the amount in demand accounts ("checking" or "current" accounts).
• M2: M1 + most savings accounts, money market accounts, retail money market mutual funds,and small denomination time deposits (certificates of deposit of under $100,000).
• M3: M2 + all other CDs (large time deposits, institutional money market mutual fund balances), deposits of eurodollars and repurchase agreements.
  (from Wikipedia.org)

The Federal Reserve stopped reporting M3 in 2006, but there are private sites that claim to reconstitute M3. Here's one of them.

Not sure of which money to use, I decided to use all of them. I took the data from St. Louis Fed's FRED (one of my fave sites) for M0, M1, and M2. I eyeballed M3 from the chart at Shadow Government Statistics, and also from St. Louis Fed's discontinued M3 series chart.

• M0: $912 billion (currency in circulation)
• M1: $1,652.9 billion
• M2: $8,349.2 billion
• M3: between $12,000 billion and $14,000 billion. (I'll use $13,000 billion
  for my calculation)

Step 3. Divide the gold reserve amount by "money" in the U.S.

So that we can figure out how much $1 would be worth in gold-terms if the U.S. dollar was to be backed by gold 100%. And here's the result:

• Gold/M0: 0.295
• Gold/M1: 0.163
• Gold/M2: 0.032
• Gold/M3: 0.021

Or the flip side - how much "1 gold dollar" would be worth in current dollars:

• M0/Gold: 3.385
• M1/Gold: 6.135
• M2/Gold: 30.99
• M3/Gold: 48.255

That's why some fanatic gold bugs scream about gold hitting tens of thousands of dollars per ounce, and not so fanatic gold bugs still predict gold at $3,000 and above.

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