Ever wonder how much gold has ever been exhumed in the history of the world? The GFMS Gold Survey estimates that the total amount is approximately 183,600 tons, or 5.9 billion ounces. If we take that figure and multiply it by the closing price on June 16, $1,181 per ounce, we find that the value of all gold comes within a nugget’s throw of $7 trillion.
This is an unfathomably large amount, to be sure, yet it pales in comparison to total global debt.
According to management consulting firm McKinsey & Company, the world now sits beneath a mountain of debt worth an astonishing $200 trillion. That’s greater than twice the global GDP, which is currently $75 trillion. If we were to distribute this amount equally to every man, woman and child on the face of the earth, we would each owe around $28,000.
More surprising is that if gold backed total global debt 100%, it would be valued at $33,900 per ounce.
Try convincing your gold dealer of this next time you want to sell a coin.
Besides imagining being able to buy a new BMW with a single American Gold Eagle coin, why is it important to think of the yellow metal in this way?
The Case of the Runaway Debt
To answer that, let’s back up a bit. For thousands of years, in countless cultures around the world, gold has been recognized as an exceptional store of value and, as such, accepted in all forms of transactions. A new archeological discovery, in fact, shows that the metal was being traded in the British Isles as far back as 2500 B.C., an entire millennium before the world’s first gold coins were minted in what is now present-day Turkey.
Up until the twentieth century, most nations were still using the gold standard. Just as most music is composed in a particular key signature to control tonality, the gold standard has historically provided long-term stability and inflationary controls. Even so, several financiers and central bankers throughout history tried experimenting with a fiat currency system, a decision which often led to major imbalances between monetary and fiscal policies, and eventually economic depressions. Last week I shared two such examples, including Scottish gambler John Law’s four-year experiment with paper money in the early eighteenth century, which ruined France’s economy and laid the groundwork for the French Revolution.