There isn't enough gold to back the US dollar. The United States holds around 261.5 million troy ounces of gold, valued at approximately $489 billion. The total US money supply exceeds $20 trillion, necessitating about 272,430 metric tons of gold at current market prices.
The supply remains insufficient, even including global gold stocks, which total around 212,582 metric tons. Transitioning to a gold standard during an economic crisis would severely limit monetary policy options and could lead to economic instability.
For a deeper understanding of these challenges and potential alternatives, consider exploring various proposals and legislative considerations.
I've arranged for you to get a FREE gold kit that shows you how to protect your savings and retirement using gold.
You can also check out my list of best gold IRA companies for 2024.
My Quick Summary
The US doesn't have enough gold to back its dollar. With about 261.5 million troy ounces of gold worth $489 billion, the US money supply exceeds $20 trillion, needing about 272,430 metric tons of gold. The global gold supply is only around 212,582 metric tons, making a gold standard impractical.
The US holds the largest gold reserves at 8,133.5 metric tons, but this is only 3.8% of the global supply and insufficient to back the US dollar fully. Transitioning to a gold standard would limit monetary policy options and risk economic instability.
A gold standard would constrain the Federal Reserve's ability to manage the economy, adjust interest rates, and respond to crises. Historically, the US moved away from the gold standard between 1933 and 1971 for greater economic flexibility. Returning to it poses significant economic risks and is generally opposed by mainstream economists due to its drawbacks and limitations.
Current Total Global Gold Supply
As of the end of 2023, the world's total supply of gold is estimated to be around 205,238 tonnes. This figure includes all the gold mined to date. According to the World Gold Council, approximately two-thirds of this gold has been extracted since 1950.
The US Geological Survey adds that about 244,000 metric tons of gold have been identified, with 57,000 metric tons in underground reserves. Historical gold production accounts for 187,000 metric tons, contributing to the above-ground stock.
These figures reflect the extensive mining efforts over centuries, making gold reserves an important indicator of global wealth. Understanding these numbers provides insight into the magnitude of the total supply in the context of global economics.
US Government Gold Reserves Holdings
The United States government currently holds approximately 261.5 million troy ounces (8,133.5 metric tons) of gold in its reserves, the largest of any nation.
This gold is primarily stored by the U.S. Mint, with the most significant portion—about 147.3 million troy ounces—safeguarded at Fort Knox.
The Federal Reserve Bank acts as a custodian for roughly 5% of these reserves. The total book value of this gold is approximately $11 billion.
These substantial holdings play a critical role in national economic security, reflecting the US government's monetary policies and financial stability.
Total US Dollars in Circulation Value in Monetary System
The total value of U.S. dollars in circulation is approximately $2.33 trillion. This figure reflects the Federal Reserve's efforts to manage the money supply within the U.S. monetary system. The currency in circulation, primarily Federal Reserve notes, has grown significantly, driven by factors such as quantitative easing and the characteristics of our fiat currency system.
Key points to consider include:
Understanding these factors offers insight into the challenges surrounding the U.S. dollar's current circulation value.
Is There Enough Gold to Back the US Dollar?
To fully back the US money supply with gold at current market prices, approximately 272,430 metric tons of the precious metal would be required. This estimate is based on the US M2 money supply of $20.84 trillion and the gold price of $2,378.41 per troy ounce.
By dividing the money supply by the gold price, one finds that converting fiat money to a gold standard would necessitate around 8.76 billion troy ounces of gold. When converted to metric tons, the sheer volume required becomes clear, significantly exceeding the total amount of gold ever mined.
Implementing such a monetary policy shift would present significant challenges for the central bank and profoundly impact global currency markets and exchange rates.
Gold Backing vs. US Reserves & Supply
Given the scale of the US money supply, the US gold reserves would be insufficient to back it fully. The US holds gold of 8,133.46 tons, which is only about 3.8% of the total global gold supply of approximately 212,582 tons.
Considering the gold-to-money supply ratio, the total value of the US gold reserves is around $489 billion, whereas the market capitalization of all gold is estimated to be between $12 to $19 trillion. This highlights a significant discrepancy between the value of the US gold reserves and the amount required to back the entire US dollar supply.
The value of mined gold and total global reserves clearly underscores the gap.
Examining the last official gold price set by the U.S. Treasury Department during the era when the dollar was backed by gold reveals an important historical figure: $42.22 per ounce. This price was established in February 1973, even though President Nixon had already ended the dollar's convertibility to gold for foreign governments in 1971, effectively concluding the gold standard. However, the value of gold certificates and gold coins remained relevant despite this shift in monetary policy.
Despite the market price of gold soaring beyond this official valuation, the US government continues to value its gold reserves at $42.22 per ounce. By October 1976, references to gold were removed from US statutes, underscoring the shift from gold-backed currency to fiat money.
US Abandonment of Gold Standard Timeline
The US transitioned off the gold standard in stages between 1933 and 1971 to gain more flexibility in monetary policy, but its gold reserves couldn't keep up with the growing economy and global demand for dollars.
In 1933, during the Great Depression and World War II, President Franklin D. Roosevelt ended domestic gold convertibility to prevent a run on federal gold supplies and to preserve the nation's dollar reserves.
By 1971, rising inflation, a deteriorating balance of payments, and pressures from the Vietnam War and welfare programs led President Richard Nixon to end international dollar convertibility into gold, effectively abandoning the gold standard entirely.
Gold Price Fluctuations Post-Gold Standard
Since the US left the gold standard in 1971, gold prices have experienced significant fluctuations, reflecting economic uncertainties and shifts in global trade markets.
Initially priced at $35 per ounce, gold soared to $850 by 1980 due to high inflation, oil price shocks, and dollar weakness.
The 1980s and 1990s saw a decline, with gold reaching a low of $251.70 in 1999 as the US dollar strengthened.
The early 2000s brought renewed increases amid the dot-com crash, 9/11, and the global financial crisis, peaking at $1,917.90 in 2011.
During the COVID-19 pandemic, gold hit a record high above $2,070 in 2020.
Despite short-term fluctuations, gold remains a reliable store of value and a safe-haven asset.
Annual Global Gold Mining Production
Examining the annual global production of new gold from mining is important. Recent data indicates that global gold mine production ranges between 3,100 and 3,600 tonnes per year.
In 2022, the top gold-producing countries were:
Since 1995, global gold mine production has grown significantly, although the rate of increase has slowed due to the complexity of new deposits. Despite these challenges, the annual production of new gold remains substantial, largely driven by these leading producers.
Understanding this context is important for evaluating the possibility of a gold-backed US dollar.
Yearly Non-Monetary Gold Demand
A substantial portion of gold is used yearly for non-monetary purposes like jewelry and electronics. Globally, jewelry fabrication claims the lion's share of gold demand, often accounting for 2,000 to 2,200 tonnes annually. In 2022, this represented 47% of global gold demand, equating to 2,195 tonnes.
The technology sector, encompassing electronic components, consumed roughly 290 tonnes in 2020 due to the industrial use of gold. Despite challenges, jewelry consumption remained steady at 2,093 tonnes in 2023, bolstered by China's recovery. The AI boom further increased gold demand in the technology sector by 10% in Q1 2024.
Recommended by LinkedIn
Gold Supply vs. US Money Supply Growth
The global gold supply isn't increasing quickly enough to keep up with the rapid growth in the U.S. money supply. Global gold mine production has been relatively stable, averaging around 3,100-3,600 tonnes annually.
In contrast, the U.S. M2 money supply has surged significantly, especially during the COVID-19 pandemic, reaching $20.84 trillion by March 2024.
Key points to consider:
This disparity underscores why gold bullion can't effectively back the expanding global currency supply.
Foreign Reserves: Gold vs. Dollar Composition in Central Banks
Despite the U.S. dollar still holding most of the global foreign exchange reserves, its dominance gradually diminishes as central banks increasingly turn to gold. The U.S. dollar accounts for 59% of global reserves, down from 71% in 2000.
This shift underscores a diversification in reserve currency composition driven by geopolitical tensions and economic uncertainty. Central banks, particularly in emerging markets, are significantly increasing their gold acquisitions, with a record 290 tons purchased in Q1 2024.
For example, China's gold reserves now constitute 4.3% of its total foreign exchange holdings. This trend indicates a gradual move away from U.S. dollar dominance towards a more balanced mix of gold and dollars in global central bank reserves.
Gold Standard Impact on Fed Monetary Policy
Returning to a gold standard would significantly constrain the Federal Reserve's ability to conduct effective monetary policy. Tying the money supply of paper currency to gold reserves would limit the Fed's flexibility to respond to economic conditions, reducing its capacity to adjust interest rates or provide liquidity during recessions.
Impact on Money Supply: The availability of gold would restrict the money supply, limiting the Fed's ability to expand it as needed.
Fixed Exchange Rate: Maintaining a fixed exchange rate would take precedence over other economic goals, such as full employment or economic growth.
Interest Rates: The Federal Reserve would have less flexibility to adjust interest rates in response to changing economic conditions.
Lender of Last Resort: The Fed's ability to act as a lender of last resort and support banks during financial crises would be severely limited.
Inflation Targeting: Achieving specific inflation targets would become difficult, as the money supply would be governed by gold reserves rather than economic needs.
Under a gold standard, the role of the Federal Reserve and Federal Reserve Banks in stabilizing the economy, managing inflation, and supporting financial institutions would be significantly compromised, including the management of bank deposits.
Economic Risks of Returning to Gold Standard
Adopting a gold standard system (international gold standard) carries significant economic risks and drawbacks that could destabilize the economy. It restricts monetary policy flexibility, making it challenging for the Federal Reserve to manage the paper money supply and interest rates effectively.
Deflation could occur if the economy grows faster than the gold supply, leading to economic contractions. Economic shocks in one country could easily spread to others, exacerbating global instability. The resource costs of mining sufficient gold are substantial.
Price instability would likely increase, and government policy would be tightly constrained. Countries that produce gold would gain undue advantages, furthering economic imbalances. Speculation and runs on gold reserves during crises could erode confidence in the system, amplifying instability and risk for those who hold gold.
Countries Currently Using Gold Standard
No countries use the gold standard today. Decades ago, the international monetary system transitioned to fiat currencies to address economic challenges and allow for more flexible national currencies.
Recent Gold Standard Reintroduction by Countries
Despite ongoing discussions and interest in gold-backed currencies, no country has reintroduced a gold standard after previously abandoning it. Switzerland, the last country to sever ties in 1999, rejected the 2014 'Save our Swiss Gold' initiative.
While Zimbabwe introduced the ZiG in 2024, a currency backed by gold and foreign reserves to combat economic instability, it had never used a gold standard before. The BRICS nations have discussed a gold-backed trading currency as an alternative to the U.S. dollar, but implementation remains elusive.
Some U.S. politicians advocate for a return to the gold standard, yet these calls haven't gained traction. Economic instability and reduced monetary policy flexibility pose significant challenges to reintroducing a gold standard in any country.
Economists' Views on Returning to the Gold Standard
Mainstream economists generally believe that returning to a gold-backed currency would hinder economic flexibility and stability. They argue that a gold standard would constrain monetary policy and lead to poorer economic outcomes.
Key points include:
Most mainstream economists advocate for a well-managed fiat currency to better handle economic challenges.
Prominent Advocates for Return to Gold Standard
In recent years, a few prominent individuals, such as Ron Paul and Judy Shelton, have advocated for a return to the gold standard, although this view remains a minority among economists and policymakers.
Ron Paul made the gold standard a central part of his platform during his 2012 presidential campaign. Judy Shelton, who was nominated by President Trump to the Federal Reserve Board, is a known advocate.
Mainstream economists overwhelmingly oppose this idea due to significant economic risks and drawbacks. They argue that reverting to the gold standard would severely limit the Federal Reserve's ability to respond to economic downturns, potentially exacerbating recessions.
The consensus among prominent economists is that the drawbacks far outweigh any potential benefits.
Legislation Needed for US Gold Standard Return
Reinstating the gold standard in the US would require significant legislative changes, starting with a mandate from Congress. This process would involve several structured steps:
Proponents of the gold standard believe these legislative actions are important for a successful return.
Proposals for Non-Gold US Dollar Backing
Several proposals have emerged to back the US dollar with commodities or assets other than gold. One idea is a commodity reserve currency, where the dollar is backed by a diversified basket of commodities like oil, grains, and metals.
Another proposal is a commodity-backed digital currency, like efforts by Russia and Iran to create gold-backed cryptocurrencies.
The petrodollar concept ties the dollar's value to oil prices, while synthetic commodity money suggests using algorithms to stabilize the dollar against a basket of commodities.
Despite these ideas, most economists support the current fiat currency system managed by the Federal Reserve, as it provides the necessary flexibility for economic stability, unlike the restrictive gold standard.
Final Thoughts
It's clear that there isn't enough gold in US reserves, or globally, to fully back the circulating US dollars at current market prices.
Although there are some advocates for a return to the gold standard, most mainstream economists consider it impractical. Legislative changes required for such a transition would be monumental.
Some suggest backing the dollar with other assets, but these measures remain contentious and complex.
Get your FREE gold kit while they last, and see how to protect your savings and retirement using gold.
Disclaimer: The article is intended solely for educational and general informational use. It is not intended as, nor should it be considered financial or investment advice. Investing in gold or any other financial asset carries inherent risks, and investment decisions should not be made solely based on the information presented here.
It is strongly recommended that you consult with a licensed and qualified financial advisor or investment professional before making any investment decisions. They can provide you with personalized guidance and consider your individual financial situation and goals.
The author does not assume any responsibility for the accuracy, completeness, or suitability of the information provided on this website for your specific circ*mstances. Any reliance you place on such information is strictly at your own risk.
Any opinions offered by The Gold Information Network or Ron Dewitt are The Gold Information Network’s and Ron Dewitt's opinions and not to be relied on by anyone for any purpose.The author of this article may be paid to recommend Goldco or other companies. The content of this article, including any positive reviews of Goldco & other reviews, may not be neutral or independent. We may receive a commission from the companies we recommend. The content of this article is informational in nature and should not be relied upon without consulting an investment professional.
The author of this article may be paid to recommend Goldco or other companies. The content of this article, including any positive reviews of Goldco & other reviews, may not be neutral or independent. We may receive a commission from the companies we recommend. The content of this article is informational in nature and should not be relied upon without consulting an investment professional.
