Understanding the Revaluation of Gold in the Face of Fiat Currency Debt Implosion and Gold-Backing the US Dollar
In This Article:
- Gold’s Path to $27,000
- The Underlying Analysis: Why Gold Could Surge
- Historical Precedents and Lessons
- The Supply and Demand Dynamics
- Doing the Math
The intrinsic value of gold is set to revalue significantly against the fiat currency system, particularly the US Dollar.
As global economic uncertainties rise, gold’s stability offers the only safe haven.
Here’s why one globally recognized financial expert believes that gold would exceed $27,000 per ounce in the near future.
Gold’s Path to $27,000
A rather straight forward and simple analysis now indicates that gold might surpass $27,000.
This forecast isn’t speculative but grounded in historical data and economic models.
While no forecast guarantees certainty, the tools and methodologies applied here have proven accurate across various contexts.
The Underlying Analysis: Why Gold Could Surge
The analysis starts with a crucial question: What’s the implied non-deflationary price of gold under a new gold standard?
Central bankers currently control fiat currencies and have little interest in a gold standard. However, should confidence in fiat currencies collapse due to factors like excessive money creation, Bitcoin competition, or a new financial crisis, a return to gold will become necessary.
Under such a scenario, determining the proper price for gold becomes essential to maintain economic equilibrium.
Historical Precedents and Lessons
Historical events provide valuable lessons. The UK’s return to the gold standard at an unrealistic price in 1925 led to an early entry into the Great Depression.
Conversely, the US devalued the dollar against gold in 1933, spurring commodity price rises and aiding economic recovery.
The key policy goal is to find the “just right” price to balance gold and dollars, something the US is well-positioned to achieve with its substantial gold reserves.
The Supply and Demand Dynamics
The supply side of gold shows a significant decline in new mining output.
Despite rising gold prices, US mine production has decreased by 28% over seven years.
This trend suggests that while output could potentially expand, current conditions support higher prices.
On the demand side, central banks, ETFs, hedge funds, and individual purchases drive demand. Notably, central bank gold demand has surged by 1,000% from 2010 to 2022, with no signs of slowing down in 2024.
This scenario of flat supply and rising demand supports the forecast of higher gold prices.
The Bottom Line
The revaluation of gold against the US Dollar is not just a possibility but a plausible outcome based on rigorous analysis.
As economic conditions fluctuate and confidence in fiat currencies potentially wanes, gold stands to gain significantly.
The recent discussion that BRICS is creating a new currency based on 40% gold-backing, the math for the same gold-backing of the US Dollar.
Read also: What is The Unit? BRICS Unveils Its Grand Plan for a New Gold-Backed Financial System
Doing the math for gold reaching $27,374 per ounce
- Current M1 Money Supply: The U.S. M1 money supply today is $17.9 trillion.
- Gold Backing Ratio: Assume a 40% gold backing for the money supply (historical precedent from 1913–1946).
- Gold Required for 40% Coverage: Calculate 40% of $17.9 trillion, which equals $7.16 trillion.
- Total U.S. Gold Reserves: The U.S. Treasury holds 261.5 million troy ounces of gold.
- Implied Gold Price Calculation: Divide the required gold value by the total gold reserves: $7.16 trillion divided by 261.5 million troy ounces equals approximately $27,374 per troy ounce.
Thus, based on these calculations, the implied non-deflationary equilibrium price of gold under a new gold standard could exceed $27,000 per ounce.
Supporting article: https://dailyreckoning.com/27000-gold/
