….and it’s an interesting one, at that.
From Citizen Economists:
Therein lies the fundamental problem of gold as a backing for fiat money, or as a direct global currency.
There simply is not enough gold on the planet, existing above ground or yet to be mined, to back all the fiat currencies that have been created to accommodate the continually rising population in this world.
Better yet, if we applied simple supply and demand laws, the price of gold would reach enormous proportions compared to the universally accepted world standard of the equivalent US$700 per ounce at today’s values. Careful, please, the price may rapidly move or down from that level!
We know reasonably well how much gold there exists on the planet. We also know approximately who owns how much, both in physical gold and in reserves still to be mined. With the expected gold craze to continue, major exploration and mining companies are hoping to bring those underground reserves to daylight to join in the speculative fever of potentially recovering gold.
For example, Northgate Minerals Corporation (TSX: NGX, AMEX: NXG) announced September 8, 2008 that it found new mineral reserves at its Australian site, including some 140,000 ounces of gold. In their press release, the company stated that the find “will extend the current mine-life by an additional 18 months until the fourth quarter of 2011.” (biz.yahoo.com). (www.northgateminerals.com)
If you do simple math and use today’s value at $700/oz., that results in some $98 million. At a cost of some $20/oz, that results in a nice profit for the company and its shareholders.
However, that amount pales on a macroeconomic level.
Egad, don’t tell that to the people that support Ron Paul, The Ludwig von Mises Institute or the people that are hawking gold on all the Conservative sites that run the ads for gold. The only response to this that I can offer is, if they ended the federal reserve bank and stopped the mass production of money. Perhaps we could go back to the gold standard. However, I will be the first to tell you that I am not, nor have I ever been an expert in economics.
It is an interesting article, I do recommend that you read it.