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The Real Price of Gold

September 12, 2003

July 2003 Consumer Price Index reads 18.39 in terms of 1.00 in July 1914, the last month when Gold Standard reigned supreme.

When we multiply Gold Standard mint price of gold, $20.67 per fine troy ounce, by Consumer Price Index of 18.39, we will get Gold Standard Index reading of $380.12.

Does it mean that $380 price of gold is the real price of gold?

Not yet, because CPI readings are no longer as reliable as they used to be.

Throughout 1994 and 1995, gold was preemptively sold into the rallies, and preemptively bought to arrest declines, until, in 1995, the price of gold became nearly fixed at annual average of $383.79. With annual average of the monthly highs at $388.46 and annual average of the monthly lows at $380.52, the average bandwidth of volatility ($7.94) became as narrow as gold export-import points of one percent on each side.

With 1995 Gold Standard Index (July 1914 mint price of gold times 1995 CPI of 15.24) at $315.04, the pegged 1995 price of $383.79 in effect broadcasted to the world that 1995 CPI needed to be upgraded by 21.8 percent in order to arrive at the true picture of inflation.

(Recalibrating Consumer Price Index was not the reason why the bandwidth of gold price volatility has been so patiently reduced to bare gold points in 1995; the purpose was twofold: (1) to calibrate the value of European currencies against €uro and Dollar, and (2) to prime the gold derivatives pump.)

Adding just one percentage point each year to 1995 CPI disparity of 22 percent will bring us to current disparity of 30 percent.

When we adjust $380.12 by 30%, we will get $494.16.

$494.16 is the current inflation value of gold as a commodity.

Should this inflation-adjusted value of gold as a commodity be adopted as the mint price of gold if the honest money régime were to be restored today?

No, definitely not!

Why not?

Because under honest money régime prices have deflationary bias of about 1 percent, which means that purchasing power of gold increases by about 1 percent per annum.

When we adjust $494.16 July 2003 inflation value of gold as a commodity by 89 percent (1 percent for each of 89 years since July 1914), we will get $933.96.

But $933.96 is still not yet the mint price of gold if the honest money régime were to be restored today.

$933.96 is merely the minimum mint-price of gold. The actual mint-price of gold must be increased by any additional percentage the free markets will determine to be adequate for clearing trade transactions.

(There is no such thing as too little gold to return to gold as money. There is only a question of the adequate price.)

Last Sunday, September 7, in 14:01 post, I have made an observation that "...even the Bensons among us should have no difficulties to recognize that gold and silver will take off to the sky for good only when the serious talk will begin in public about returning them to their historic role of daily money."

Now we have the figures to illustrate this point.

When we propose to reduce gold's raison d'être, and GOLD-EAGLE's scope of debate, solely to the show-me-the-money refuge from anticipated destruction of the paper assets, we reduce, ipso facto, the real price of gold solely to its value as a commodity, i.e., $494.16.

But when we recognize that gold's destiny, and GOLD-EAGLE's scope of debate, is to uphold the honest money régime, we are talking about the minimum price of $933.96.

In broad numbers, it's $500 versus $1000.

Would the price of gold of $1,000 per fine troy ounce be adequate to support the return to honest money régime today, as described in "THE ALTERNATIVE FUTURE" ?

Most definitely, yes!

As of June 2003, US gold reserves were reported at $11,044,000,000.

At official valuation of $42.22 per ounce, this figure translates to 261,582,188.5 ounces.

At $1,000 valuation, these gold reserves are worth $261,582,188,500.

As of June 30, 2003, there were $766,845,226,896 worth of Federal Reserve notes outstanding and in circulation.

Because two-thirds of that amount circulates abroad, the amount that must be converted to gold upon our Overnight Revolution is only $255,615,075,632.

It is respectfully submitted that $261 billion worth of gold is enough to mint $255 billion worth of gold coins.

Gold is still being mined and refined at the rate of almost 2,600 tonnes per year.
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