Do you know how much gold is exchanged daily in dollars? If not, prepare to be shocked. by Jake Towne, the Champion of the Constitution
Sunday, March 29, 2009
While gold trades as a currency (or "medium of exchange") and also is a "store of value," and even a "unit of account" for some, very little is actually consumed. Economically speaking, gold trades as money, even in our modern world. Gold is a luxury good with many industrial applications, but insignificant industrial consumption due to its high price per gram (about $30/gram right now). Its major market as a luxury good is Indian women's jewelry, but to these women the gold is their money, or insurance, if their mate leaves, dies, or is disabled so the metal is not consumed – it can be easily recovered. ( Photo) (2)
To make my case that gold is money, what seems to be little known is that the gold market is also quite large - the LBMA in 2008 traded about $80 billion USD per trading DAY per the data collected by the IFSL 2009 Bullion Markets Report p3/8 - which I took the time to verify to be correct from its original sources - or $20.3 Trillion in turnover in 2008 and 254 LBMA trading days. However, the IFSL makes a significant note that this volume is quite likely three-to-five times larger since much of the transactions are increasingly netted out and cleared without appearing in the statistics. Please compare this to the 2008 GDP of the United States at $15 Trillion and understand the rough estimate that 75% of the world's trade in gold (and half of the world's silver) is traded via the LBMA.
Silver, on the other hand, serves as both an industrial metal and a "store of value" for silver investors. As we learned here, both silver and gold are precious metals since there is very little aboveground stock. All of the gold stock in the world would fit into a cube 20.5 meters to a side. Due to high amounts of industrial usage, the silver stock is even smaller, less than 14.5 meters to a side.
However, as seen below, the silver market size at $10 billion is minuscule – just a tiny fraction of a percent - compared to the gold market. What is really mind-blowing is that the LBMA traded the entire annual mine production of silver every 6 days, while the annual mine production of gold was traded every 4-5 days, despite the fact that silver is priced as if it were a commodity similar to wheat, corn, or copper. You see, the aboveground stock of gold valued at about $4100 billion is equivalent to roughly 5.2 billion troy ounces of gold, but the annual mine production is only 0.087 billion. The aboveground stock of silver valued at $10 billion is estimated at roughly 1.0 billion troy ounces of silver and the annual mine production of silver is about 0.671 billion. (IFSL report, pages 5-8/8)
So the annual "stocks-to-flow" ratio of gold is 60, meaning that there is the equivalent of ~60 years of production aboveground for every year of production. In contrast, for silver the ratio is about 1.5, which is much closer to typical commodities which all lie around one year of production in aboveground stocks for every year of production. Gold is not just another commodity; mankind will never achieve perfection in all things, but nature's "metal of the sun" is as close to perfect money as mankind is going to get. Modern-day gold mines are lucky to exceed 1 gram of gold from each metric ton (2,205 pounds) ground and processed. If you never have, try holding a one troy ounce (31.1 gram) gold coin in your hand. It's 2.5 times denser than steel and took a lot of effort and risk to mine.
So, the equivalent of the entire aboveground stock of gold is exchanged every 269 trading days while the equivalent of the entire aboveground stock of silver is exchanged every 9 trading days at the LBMA.
Finally, if that did not convince you, please check forex.com. See XAG and XAU? That's our trusty friends, silver and gold. Both are internationally recognized currencies as Michael Stoddard writes in "The Silver Phoenix is Rising Again."
I interpret the all of the preceding information to mean that gold has never stopped being used as both a money and a currency, even in the last 38 years of floating fiat exchange rates. Silver is money as well, but is not traded in high enough volumes, in dollar terms since the price per ounce is too low, to be considered a currency. Jason Hommel reinforces my point in his recent speech "Why Silver is Money."
Folks, this "stocks-to-flow" fact is well understood, but remains unstated, by the financial elite, most notably Obama's chief economic advisor and modern-day John Law, Lawrence Summers. If the world population widely understands the above and begin to both acquire the physical metal and clamor for the restoration of gold and silver as honest money, governments and central bankers could very well lose what is amounting to a stranglehold over the global economy. The world would realize that central banks are not needed whatsoever.
"Financial crisis"? Screw that, this is an all-out Gold War. Go GATA!!
PS I realize I have a strong stance on the subject but please offer any rebuttals or feel free to ask any questions. I suppose another conclusion is that since gold trades around a quarter-quadrillion dollars every day, if you have saved money, depending on your circumstances it may be extremely foolish to not at least have some gold.
We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.
As always, unlike the NFL, the author grants full permission to allow any accounts of, rebroadcasts, retransmissions, repostings in part or full of this article to your blog or anywhere else in order to promote the Restoration of our Republic.
Veritas numquam perit. Veritas odit moras. Veritas vincit. Truth never perishes. Truth hates delay. Truth conquers.
Tu ne cede malis sed contra audentior ito. Do not give in to evil but proceed ever more boldly against it.
As a disclaimer of sorts, I am a supporter of owning physical gold, physical silver, www.gata.org and www.goldmoney.com. Any investment or financial views expressed in the article are mine and mine alone, so make your own financial decisions by educating yourself. All I am doing is sharing my views to help you decide, even if its just to become aware that you do have a decision to make. These articles reflect the my opinion and are by no means a guarantee of future economic conditions. My articles are provided for INFORMATIONAL PURPOSES ONLY and are actually NOT MEANT to provide investment advice to anyone. You can even say its a charitable but naive act, given the historical tendency of the US government to oppress and steal.
GO GATA! The premise of the Gold Anti-Trust Action Committee that the world gold market is artificially suppressed by central banks in order to make their currencies look stronger. 25 minute intro Part (1)(2)(3)
www.GoldMoney.com - GoldMoney is an international gold and silver warehouse with insured vaults in London and Zurich. Ability to hold and pay interest on six major fiat currencies, issue payments in goldgrams, silver ounces, etc. Think of them as an alternative way to diversify where and how your physical metal is stored, but I urge you to be wary and thoroughly investigate this and ANY method where someone else holds your metal for you before investing. The best is always physical possession (or pay for storage at a Brinks-type depository) although you should always be creative with your storage locations :)
The World Gold Council - A wealth of information on central bank holding, gold derivatives, supply and demand statistics and more. Free login required.
Paul, Ron. "Pillars of Prosperity." (2008) A 400+ page compilation of Dr. Paul's writings. After reading these, one realizes that Dr. Paul did very little recent work in putting together his best-selling "The Revolution" as most of this book was written 20+ years ago.
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Jake I don't really disagree with you but I would add a few cautions:
1) As you point out gold has no intrinsic value. You can't eat it. You can't put it in your gas tank to power your car. And while you can wear it, it will not keep you warm. It only has value if someone else is willing to give you something for it. But it's been decades since gold was money. If times get really tough people may not think of it as money. They may place more value on a can of beans than on an ounce of gold.
2) The price of gold is volatile. Gold hit a historic high of $1029 on 3/17/2008. It is down about 10% since then. And it has been as low as $700 in the intervening time.
3) Sound investing requires diversification. In other words don't put all your eggs in one basket.
Posted By: Jake, the Champion of the Constitution
Date: 2009-03-29 12:34:59
David S -
I agree with everything you wrote. On #1, there isn't much hesitation to exchange gold for food, as can be seen in Zimbabwe, if you have time for a troubling 7min video
On #2, it even reached $680 at one point! My thoughts on this is that 1) the price is manipulated per GATA's work, so if tomorrow gold shoots down to $600 I wouldn't be surprised, and 2) its also best to always look at the exchange rates for gold in all the major fiats - sometimes, being stuck in the "unit of account" of the dollar can put blinders on you.
On #3, absolutely!! I diversify the storage of my metal! :) No, I completely get and agree with your point, thanks for writing! - Jake
for gold to be a speculative bubble, it would have to first achive a more realistic price. we could start w/the US debt, then move into the $1.5 quadrillion in derivatives out there. if gold, once properly valued to account for these derivatives and debt, were to go to bubble status afterward, then halelujah!! :)