In our last article we measured total world currency outstanding in US Dollar equivalents to total world gold above ground. That came out about $1,100 per Troy ounce.
In this article, we take a more narrow view suggested by Mark Anthony to measure the total amount of outstanding currency per country expressed in US Dollar equivalents to the total gold held by each country's central bank.
That measure comes out at nearly $4,000 per Troy ounce for the United States and the European Monetary Union (the two largest gold holders by a wide margin).
China was much higher at over $21,000; Japan up to nearly $36,000, and Indonesia over $122,000. Other countries among the 14 we sampled, ranged from a low of about $2,600 to a high of nearly $10,000.
If you add all those currencies and all those central bank holdings, you get a currency outstanding per central bank ounce of gold holdings at over $6,000.
The two articles create a bracket of all currency divided by all gold on the low end of value, and per country currency divided by per country central bank gold holdings at the high end of value.
Presumably, the data for the countries with the globally most important currencies and/or largest central bank gold holdings give the best indicator of value by this metric of currency in circulation per ounce of gold.
The low end of a bracket is all currency globally divided by all gold globally with a ratio of about $1,100 per ounce
The high end of the bracket is all currency on a per country basis divided by all central bank gold holdings for each country. The "core" ratio is probably best taken from the combination of the United States and Europe, which comes out at about $4,000 per ounce.
The scatter in the per country measures is huge. The low end ratio is around $3,000 per ounce (Sweden and Taiwan). The high end ratios are from Indonesia (~ $122,000), Japan (~ $36,000) and China (~ $21,000).
The composite of the countries reviewed has a ratio of about $6,000 per ounce.
So What's Right?
We don't know what currency figure is best for the numerator, or which is best for the denominator, but we feel confident that some currency in circulation divided by some gold quantity is the best metric for establishing a logical current fiat value (not price ... value) for gold.
If gold is an alternative to fiat currency, then the number of fiat currency units in existence per ounce of gold makes the most sense. That equilibrates to a full gold convertibility for the currency.
We do not believe that public debt, or unfunded liabilities, or GDP, or the rate of inflation, or any other measure is a logical means of establishing the current fair value of gold; as long as gold is thought of as an alternative to paper money, and as the substance into which paper currency "should" be convertible.
Prices of all assets vary around current fair value, and gold is no exception.
Markets may price with a forward view of events, and shortages in available metal may raise price, while excess available for sale may reduce price; but value needs to be in relationship to something --- we think that something is currency in circulation.
Someday, when we or someone else figures out which universe of currency and which universe of gold holdings is best, we will then resolve where in that huge range of $1,100 to $4,000+ the current fair value of gold resides.
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