Bob Murphy mentioned that the price of gold must be keeping Keynesians up at night. I was on Peter Schiff’s radio show the other day and the topic of gold featured prominently.

Its appealing to think of gold as a true store of value and that fiat currency and fractional reserve banking are fake.

However, the quantity of gold in existence is simply dwarfed by the size of the global economy. This makes it hard for gold to play a fundamental role, even absent concerns about monetary policy.

In human history there have been a little over 5 billion ounces of gold mined.  A good fraction of it is I believe still in existence. About 50% is as jewelry and about 10% have industrial applications, leaving roughly 40% for investment and trade.

That’s about 2 billion ounces. Even at today’s prices, which I would call a bubble, we are looking at about 4 trillion dollars worth of gold. That’s for the entire world to use.

In contrast:

Total liabilities at non-financial US businesses are a little over $11 trillion

Total US Household liabilities are a little over $14 trillion

Total liabilities at US Financial institutions are about $18 trillion

Total US State and local liabilities are about $2.3 Trillion

Total US Federal liabilities are just under $10 trillion

So the US alone is running liabilities in excess of $55 trillion. That’s well over 10 times the value of all gold and its just the US. There is an entire rest of the world we’d have to split the gold with.

This is before we even get into GLD and its efforts to manipulate the world price of gold. Even at gold’s currently inflated rates it can’t seriously backstop even the US market.

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