Gold's Intrinsic Value Vs the US Dollar

Phoenix Capital Research's picture

Many investors argue that Gold has no intrinsic value. I disagree with this assessment as it does not consider the nature of the financial system.


Let’s compare Gold to the US Dollar.


Every asset in the financial system trades based on relative value. Ultimately, this value is denominated in US Dollars because the Dollar is the reserve currency of the world.


However, even the US Dollar itself trades based on relative value. Remember the Dollar is merely a sheet of linen and cotton that is printed by the Fed and is backed by the full faith and credit of the Unites States.

In this sense, the Dollar’s value is derived from the confidence investors that the US will honor its debts.


A second item to consider is the fact that the Dollar’s value today also derived from the Fed’s money printing. Indeed, a Dollar today, is worth only 5% of a Dollar’s value from the early 20th century because the Fed has debased the currency.


As a result of this the world has adjusted to this change in relative “value” resulting in a Dollar buying less today than it did 100 years ago.


In this sense, Gold’s value is derived from investors’ faith in the Financial System (ultimately backstopped by the Dollar) and the Fed’s actions.


Gold also moves based on investors’ confidence in the system. If investors’ are afraid that the system is under duress (meaning that they have little confidence in the Dollar-based financial system) then they perceive Gold has having a higher value.


Similarly, if the Fed prints Dollars by the billions, Gold is perceived as having a higher value relative to the Dollar.


Thus, Gold does not have any less intrinsic value than the US Dollar does. In that regard we can price it relative to the Fed’s actions and to the fear of systemic risk to get an assessment of its true value.


As noted a moment ago, every asset in the financial system trades relative to investors’ confidence in that system. With the US Dollar as the reserve currency of the world, that confidence is ultimately based on the idea the US will pay you if it owes you money.


If you remove this confidence, then the entire system collapses as the reserve currency is no longer perceived has having value.


The problem with this setup however is that the US, like almost every other country in the world (I’m including China which is sporting a Debt to GDP ratio north of 200% if you account for its Shadow Banking liabilities), has made promises that it cannot possibly keep.


The US “officially” owes nearly $17 trillion in debt. However, if you include unfunded liabilities this amount surges to at least over $80 trillion and likely north of $100 trillion.


These are promises the US has made. And the US Dollar’s value is based on the belief that the US will honor these promises.


The US is not isolated in this regard. Indeed, the problem of unfunded liabilities exists throughout the world.


In the case of Europe, the situation is so bad that the average EU country would need to have an amount equal to over 400% of its GDP sitting in the bank, earning interest at the government’s borrowing rate, in order to fund its unfunded liabilities.


The same goes for Japan and even China where the shadow banking system has liabilities north of 200% of China’s GDP.


These are promises that cannot be kept. And when these promises are broken confidence in the system will be broken. This will inevitably lead to a period of currency collapse. After this, ultimately there will be a need to restore confidence in the system.


The only way to do this will be by backing currencies with Gold again (or a basket of items that includes Gold).


Given the limited amount of Gold in the world, (a little over 171,000 tons) and the enormous amount of US Dollars in the world, this would require a revaluation of Gold to north of $10,000. Dylan Grice formerly of Societe General lays this out beautifully in the below chart.



I cannot possibly predict when all of this would happen. All I can state with 100% certainty is that ALL fiat currencies throughout history have failed.


This failure has been based on a loss of confidence. And the only way to restore confidence is to limit the ability of Central Banks to print money.


This will inevitably lead to some form of a Gold backed currency. Gold has been used as currency for over 5,000 years. It will be considered currency again in the future. When it does, the price of Gold will be much higher (remember, Gold has risen over 34 fold in the last 40 years).


For a FREE Special Report on how to beat the market both during bull market and bear market runs, visit us at:


Best Regards


Phoenix Capital Research




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J S Bach's picture

This is all very interesting, but also inane to me.  You only need to know that gold is valuable because it is rare... period.  Why is a canteen of water so valuable in the middle of a desert?  Because there, it is rare.  And the whole world is gold's desert.  Why are numismatic coins even more valuable?  Because they are even more rare.  And never forget the all-important ratio of available silver in this world, which is only 15 or so times that of gold.  Yet, unlike gold, silver is not entirely recycled and now stands at a 64-1 ratio.  Insanity.

rwe2late's picture

Gold can be expected to drop BELOW $500

because of these reasons:


MeelionDollerBogus's picture

500 A GRAM? Yes, gold is still under 500 a gram but not for long.

JamesBond's picture

use the /sarc tag next time

MeelionDollerBogus's picture

what, /sarc isn't embedded automatically?
Now what am I going to do when gold drops below 200.

I know! I'll eat my bitcoinz.

Never One Roach's picture

Lets bring The Honorable Corzine into the interview and get his opinion.

mrdenis's picture

Corzine is too busy as Obama's front man for Obummycare ....

zipit's picture

RE: "If investors’ are afraid that the system is under duress (meaning that they have little confidence in the Dollar-based financial system) then they perceive Gold has having a higher value.": If the system is in a panic, babies, including gold, get thrown out with the bath water.  See 2008. 

Kina's picture

The sun...the source of all our energy...except earth based nuclear reactors....

Freewheelin Franklin's picture

The only thing that has intrinsic value is sunshine! 



(IDK it sounded good at the time)

logicalman's picture

Just had to ask....

How's Fat Freddy doing these days?

Wyatt Junker's picture

In the end, the guy with the biggest dick wins.

And in that day, John Holmes will be president and Tommy Lee will be his vice.

Peter Pan's picture

"In the end, the guy with the biggest dick wins."

Are you by chance referring to Lagarde ?

Peter Pan's picture

I am not quite sure what your point is but you reminded me of the joke about the black kid that went home to his mother and proudly announced to her that he had the biggest dick out of all the kids in kindergarten.

MOTHER: Is that so son.

SON: Yes ma. Is that becoz I'm a nigger?

MOTHER: No son. It's becoz you is 16 years old.

ebworthen's picture

Got's to buy me some more physical GOLD!

Boxed Merlot's picture

double post / hiccough

Rock On Roger's picture

I would bring along the silver though, silver has medicinal properties.

So silver does have intrinsic value.


Stack On

Geruda's picture

Water, air, firewood, food have intrinsic value...everything else including emeralds, silver, diamonds, gold, and silicone titties not so much.  



If you don't believe it have someone drop you off in the wilderness and check out what you pack into your suitcase before you leave.  I'm guessing the gold bars stay behind. 

MeelionDollerBogus's picture


The gold can be used to weigh down things, be banged out into a mirror, be sharpened into a blade suitable for soft cutting (not branches, too soft for this metal), a mirror, a bowl - it's very malleable.

Try doing that all day in a pinch with copper. It can be done but you'll be very sore & at it much longer. Plus it's still money as soon as I get to anyone to trade with.

Silver's medicine: broad-spectrum anti-biotic. Will need clean water + 9V battery + container to do this in for best results. Similar silver is soft & can be turned into bowls, mirrors, spoons or cutting edges on demand and not stop being money the entire time.

Emeralds: dunno. Rubies / sapphires: very hard, good for cutting too, may need that depending on the situation + additional machinery one can craft. If it's purely iron pan + pond/river + anything edible you can pull from the soil, perhaps not. I'd want any such gem already pre-cut to a form that's good for cutting, though, otherwise... not so much.

Trade value would vary a lot on the gems in shtf.

Bohm Squad's picture

Agree...there's a difference between historical value and intrinsic has a historical value and that's what TPTB are attacking in an attempt to change 5000 years of historical value over a few decades.  Personally, I hope they fall on their faces.

Peter Pan's picture

"Water, air, firewood, food have intrinsic value...everything else including emeralds, silver, diamonds, gold, and silicone titties not so much."

Good point but have you ever tried wooing a woman with firewood as opposed to a gold necklace? Just asking. 

MeelionDollerBogus's picture

Was it Alaska? In January? :-)

Marco's picture

When the financial system collapses most of the need for all those dollars collapses right with it, it's bubbles all the way down. The value of gold necessary for it to serve as a reserve currency post collapse is negligible compared to the value of the dollar supply we have now.

Murf_DaSurf's picture



I predict your prediction is right

Seal's picture

I predict at times in the future NO amount of US dollars will be able to buy gold

Geruda's picture

When that time comes you'll pray for the day when society was still organized well enough that paper was an acceptable form of barter.   


You can be sure, if the day comes that you predict, it will be closer to whatever your vision of hell on earth is than comething to rejoice in.  And no one who is here now is going to be plopped on their fat ass in front of a computer fantasizing about gold.

MeelionDollerBogus's picture

It will looke like Kabul or Detroit. Maybe Somalia. Nothing new under the sun.

Boxed Merlot's picture will be closer to whatever your vision of hell on earth is than comething to rejoice in...



Agreed.  It's a mistake to think those preparing for this eventuality are somehow looking forward to it with glee.  The reason for the ridicule of those "tbtf" institituions and their handlers is precisely because they are carrying us all with them towards the great abyss that will make a mockery of their beloved "reserve currency" status.  Voluntary adherence to and swift, equitable and universal application to a commonly ackowledged rule of law is far more important than any amount of hoarded wealth.  Personally, I blame the US judiciary for selling out to the executive and legislative branches by neglecting to apply appropriate legal remedies to all, regardless of size, wealth accumulation and /or perceived political clout.  Our courts are as derilict if not moreso, than any of our 535 bozos or the myriad of executive appointees.