Got Gold? – Not Enough to Go Around

February 24, 2009

With the stock market tanking on a weekly basis, and the price of gold hitting all time highs, is it time to rethink our dependency on paper money and go back to the “gold standard?” Sorry, there’s not enough to go around.

Our money system used to be tied to the gold standard. For every federal dollar in circulation, we had precious metals to back up its value. Through a series of economic moves from World War One to 1971, we eventually went off any gold standard and began to rely on what is called “fiat money” – paper which is money simply because we say so. In 1939, the federal government took gold coins off the money market and required all Americans to turn in their gold coins. For a time, Americans also used “silver certificates” as money, but they were taken out of circulation in 1968.

Now, however, gold coins are available for collection, and privately held gold is traded daily. Currently, an ounce of gold is trading at figures close to $1,000, almost an all-time high.

How much gold, however, actually exists in the world? You will certainly be surprised to hear the answer – not that much.

Gold is a precious metal because, indeed, it is an extremely rare element. In ancient times, it had intrinsic value due to its rarity, high malleability and looks. Spanish conquistadors exhausted themselves looking for “cities of gold” in the New World.

Given this long history, how much gold do you think has been found in recorded time? Experts who estimate this sort of thing have concluded that “only” 160,000 metric tons of gold have been mined in all of history.

Sound like a lot? For us metrically impaired Americans, let’s first convert everything to good old American pounds and dimensions. 160,000 metric tons is the equivalent of about 176,000 American tons (2,000 pounds, called “short tons”). In round numbers that means 352,000,000 pounds of gold have been discovered in recorded history. At 16 ounces to a pound, that means that we humans have put our hands on about 5.5 trillion ounces of gold.

Again, sound like a lot? Remember, gold is a very heavy metal. The largest form of a gold bar (called a “London Good Delivery Bar”) contains 400 troy ounces of gold, or 438.857 American ounces (about 27.5 pounds). Such a gold bar is 8.3 inches long, 3.3 inches wide, and 1.9 inches thick (not exactly the huge gold bars you may remember from the Bond movie “Goldfinger”).

If you converted all the gold ever mined into gold bars, you would have 12,700,000 gold bars. Ft. Knox, the U.S. gold depository, has 368,000 of these gold bars in its vault. At its currently traded price, that comes to just over $147 billion in gold.

Put all of that Ft. Knox gold into one pile, and you would have a cube 6.3 feet on each side. That’s it. Such a cube could fit into half of one room of a two room apartment. You’d better have a strong foundation, however, because that big gold cube would weigh 5,040 tons, or about as much as 1,100 average sized African elephants (yes, gold is that heavy).

In fact, if you piled up all of the gold mined in recorded history, you could just fill just one third of the Washington Monument or, instead, two Olympic sized pools. That’s it.

Current American gold reserves amount to $147 billion. Today’s economic news has made even a trillion dollars sound like only a down payment on the near future. If we forced gold to be the standard behind all of this country’s money, the price of gold backed by Ft. Knox’s reserves would have to be $56,000 per ounce instead of $1,000 per ounce. On second thought, maybe you’d better hold on to those gold coins you collected.