Guest Post: A Gold Standard: Easier Said Than Done

Tyler Durden's picture

Submitted by Simon Black of Sovereign Man blog,

If you haven’t heard yet, the committee which is drafting the platform for next week’s US Republican National Convention has announced that they are including a proposal to return to the gold standard. Big news.

Ironic… given that it was a Republican president (Richard Nixon) who abolished the gold standard in the 1970s. Regardless, it’s nice to see the issue thrust into the spotlight. But does it stand a chance of actually becoming a reality?

Let’s look at some numbers.

Remember, a gold standard is a monetary system in which individual currency units are fixed to an amount of gold held by the government; under a gold standard, the paper money supply cannot be expanded without also increasing the amount of gold on hand.

With a full gold standard, 100% of the money supply is backed by gold. In practice, a smaller amount of gold may be fixed to back the money supply.

According to the World Gold Council, all the gold that has ever been mined in the world is now valued at roughly $10 trillion. This is essentially the same number as the current M2 money supply in the United States.

In other words, to fully back its existing money supply, the US government would have to control every ounce of gold that has ever been mined in the history of the world.

At present, the market value of the federal government’s gold holdings only amounts to about $250 billion. Now, I’m making a big assumption that Uncle Sam is accurately reporting his gold holdings. But we shouldn’t worry much about this, US gold holdings are going to be audited soon. By the Treasury Department. How impartial.

Anyhow, this $250 billion worth of gold bullion constitutes a mere 2.5% of US money supply. So advocating a return to the gold standard is much easier said than done.

Even under a flimsy, partial gold standard, the amount of gold backing the currency would certainly need to be north of 2.5%. Even if just 10%, this would suggest either:

(a) money supply would contract by 75%, spurring massive deflation [unlikely]

(b) the gold price increases to $5,000 [more palatable]

Clearly one of the key risks in this scenario is that the US government would need to acquire as much gold as they can get their hands on, likely through Roosewellian-style gold confiscation.

Let’s be honest, though. This talk of a return to the gold standard is probably just a pipe dream. The numbers don’t make sense. Besides, why would any politician want to be constrained from conjuring money out of thin air?

But just in case the idea gains momentum, it may be worth a speculation.

One could, for example, buy some options on long-dated futures; the call option to buy gold at $2,350 in December 2017 costs around $225 right now. Assuming that silver also rockets in price, one could pay ~$2 for an option to buy an ounce of silver in December 2016 with a strike price of $80.

If a return to the gold standard drives precious metals prices through the roof over the next five years, those options could be worth 20x what you pay today. If it ends up being nothing, your exposure is limited.

Naturally, there are a number of risks associated with making such speculations in public markets… not the least of which is the counterparty risk associated with the exchange itself.

I’ve long written that public markets are completely broken. Exchanges are just government lap dogs who make a sport of supporting fraud and fleecing the little guy.

If you have the means, you can reduce this risk by investing through foreign exchanges. Hong Kong’s exchange currently has a cash-settled gold futures contract (100 troy ounces of 995 gold priced in USD) and will eventually introduce options. Other global exchanges (Shanghai, Singapore, etc.) also transact gold futures.

Of course, nothing beats owning physical metal, preferably stored overseas. If Roosewellian-style gold confiscation becomes reality once again, the safest place for your gold is going to be a snug safety deposit box in a place like Hong Kong or Singapore.

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5880's picture

Never going to happen

tsx500's picture


Pladizow's picture

"History doesnt repeat, but it does rhyme" - Mark Twain

Regan tried this in the 80's

With regards to "confiscation" - In 1933 only one person (A NY Attorney) had his gold confiscated and that was 5000oz held at a bank!

Eveyone else willingly turned it in.

What are the chances of anyone willingly turning in their gold today?

Surly Bear's picture

I'll give you ironic...Obama is the new Nixon!

strannick's picture

LBMA refusing to allow silver delivery out of LBMA system. This is big. This is the brave face of an LBMA default. Go to minute 18:56

Poor Grogman's picture

Th government Voluntarily Going to a gold standard would be like the "State" voluntarily turning up at the clinic for sterilization.

The only reason they would do it is if the alternative was worse.

Like losing reserve currency status perhaps....

bernorange's picture

HR 1098 is a rather simple solution to allow a defacto gold standard if the market wants it.

Sean7k's picture

The simplest solution is the elimination of legal tender laws. Let the people/market decide what is money and what it's value is. Then let people pay taxes in fiat. This will work itself out in no time at all...

cranky-old-geezer's picture



They know "someone" is about to introduce a gold-backed currency. 

"Someone" powerful enough militarily to prevent our military bullying them.

So yes, they know USD is about to lose WRC status.

There's no way they can come up with any sort of gold backing anyone would take seriously. 

How much gold do you need to "back" a $50 trillion money supply?

$50 trillion?   Yes.  $40 trillion of it is "off balance sheet".

But implement any sort of gold backing for a $10 trillion money supply, and the whole $50 trillion comes flooding back to the Fed, people wanting gold, and the truth comes out, it's really $50 trillon.

What does that do the dollar?  

"Currency collapse" comes to mind.


Freegolder's picture

No one is thinking of a new gold standard.


The Euro has demonetised gold, it's just a reserve asset now.


Central banks are buying it because it is pure wealth, paid in full, and we should do the same.


Free floating physical gold is needed to free savers from the crappy fiat.


So, no gold standard, rather freegold awaits, thanks to the Euro architects (and natural evolution).



cranky-old-geezer's picture



There's plenty of people who don't give a fuck about the Euro "demonetizing gold".  They can shove their Euro up their ass.  Nobody fucking cares.

Yes, "somebody" is gonna introduce a gold-backed currency.  Won't be long now.

Poor Grogman's picture

And it won't be the euro tards either

gmrpeabody's picture

Well...,you see, I was boating and......

MachoMan's picture

My guess is they've already siphoned an incredible amount of it via the cash for gold meme...  I can't fathom granny has any gold left after all the progeny have sold it for pennies on the dollar over the years...  the rest of middle america is just trying to scrape by with gold largely already being cost prohibitive, despite availability of fractional ounces.

goldfish1's picture

Why would anyone give these liars any credibility?


Pemaquid's picture

I read somewhere that only 30% of the gold was turned in. Anyone have a definitive percentage?

XitSam's picture

A significant percentage was overseas in 1933, I don't know off-hand how much.  Only the domestic holdings were confiscated of course.

Darth..Putter's picture

The Gold Standard is very-easily done. 


When CONFIDENCE in any piece of paper or promise goes to zero, then all you have left is hard assets. The confidence in the paper is going down the tubes with every non-prosecution, as that is the confidence in law. 


The hidden soup-lines (food voucher system) is filled with people who are watching the inflationary policies with rapt attention.  Every week the see less and less of the promise of government to care. 


There is a tipping point at which beer, bread, milk, gas, electricity or water will not be delivered.  At least not for another piece of paper. 


When the price of toilet paper costs more than the Federal Reserve Note per wipe, you will know.


IN hand precious metals is the easiest answer today. 

Precious's picture

Regulators would probably mandate it contain 1% flouride.

ACP's picture

Exactly, it never will. But, if more people think of gold as what it actually is - currency - it won't matter, pragmatically speaking.

Just think of the US having 2 currencies...1) gold, tangible value vessel and 2) unconnected dollar, used solely to buy shit.

DCFusor's picture

Agree it's not going to happen, unless....

Hasn't it occurred to anyone that you can still do fractional reserve, and count on the fact that never will everyone turn in 100% (or even much over a few percent) of their fiat to get gold from the government? 

They can screw this up just like they do current FRNs, it's just as easy.

And remember, most money isn't even paper, it's bits.  Probably couldn't turn that in for gold anyway, the bits don't have "gold certificate" stamped on them.

HardAssets's picture

It may very well happen (how soon, who knows) ?  It would not come about because of 'party platforms' spouted by politicians. Does anybody pay attention to what they say now ? Romney who said he wouldnt go along with an audit of the Fed, will now support a gold standard ?  People are really that naive to believe these demorepublicrat liars & theives ?

A gold standard might come about as a result of the markets, if there was a complete loss of faith in the dollar. Sovereign nations are buying gold now for a reason. China may back the yuan with gold someday.

But, of course the pricing of dollars in terms of gold would have to be adjusted. When something is made near valueless, how much is it worth in terms of something in demand that people value highly (for thousands of years) ?  The author still seems to think in dollar terms to some degree.


lightning's picture

Your post made me think about something that is connected indirectly.  You said, "It would not come about because of 'party platforms' spouted by politicians.  ...Romney who said he wouldn't go along with an audit of the Fed, will now support a gold standard?"  What if this is a political gambit to gain the libertarian/Ron Paul voter?  As you noted this is a change for Romney and one wouldn't think he would be saying this given his head financial advisor and/or his past behavior/statements.  I am beginning to wonder if he might have a big speech about this at the convention in an attempt to pull the libertarian/Ron Paul voters to vote for him.  These people won't vote for him, but I'm betting he is going to make a play for their votes via this subject anyway.

n8dawg84's picture


My father told me this morning about a Drudge article stating Repubs. are thinking about returning to the gold standard (though I had already read the ZH article about truth/red herring).  I told him the same thing you are thinking now.  It's an attempt to reach out to the Ron Paul voters.  Romney's/Obama's backers don't want a gold standard, therefore one will not come until it is forced upon them.  I'm still writing in Ron Paul

e-man's picture

1. A return to the gold standard would prevent the government from borrowing and spending beyond its means, thereby insuring the value of people's savings.

2. The government will not willingly return to a gold standard because that would prevent the government from borrowing and spending beyond its means, thereby insuring the value of people's savings.

Peter Pan's picture

The first step to any sort of gold standard is for manipulation of the price of gold to stop. Without this first step there will be no end to monetary madness.

sodbuster's picture

>Anyhow, this $250 billion worth of gold bullion constitutes a mere 2.5% of US money supply.<

That's a better guarantee than the FDIC isn't it?LOL

zerozulu's picture

It will happen the day when Iran goes nuclear and declare how much gold will it accept for a barrel of oil.

Abraxas's picture

BB: "Gold is not money (pause)... it's an asset." FYB!

Manthong's picture

"In other words, to fully back its existing money supply, the US government would have to control every ounce of gold that has ever been mined in the history of the world."

Well, we have a head start at the FRBNY and we could keep all those carriers pretty busy getting the rest.

Cognitive Dissonance's picture

Never said it would be easy. In fact I'm certain doing so would break several bankers' eggs when we whip up the new hard money omelette. All the more reason to start now.

Git er done.

How to cook an omelette.

SubjectivObject's picture

I'm confused about when bankers do tell the truth.  Disinfo seems more their modus operandi than bonafideinfo (it is CNBC, after all). 

fonzannoon's picture

How about they keep boosting inflationary pressures into the real economy and keep wages stagnant? This way as people go broke they slowly have to cough up their precious metals and other valuables like what is happening in Portugal? I guess the key is to hang on for as long as you can.

KK Tipton's picture

"How about they keep boosting inflationary pressures into the real economy and keep wages stagnant? This way as people go broke they slowly have to cough up their precious metals and other valuables like what is happening in Portugal? I guess the key is to hang on for as long as you can."


Ding Ding Ding. Winner.

This is, and has always been the "bankers" plan.

What do you think Bilderberg discussions/meetings are all about?
Why are heads of corporations invited?

To make sure they are all on the same page.
Banality of evil situation right there.

lightning's picture

Best defense against this is the barter system.  There is a barter system just about anywhere.  Craigslist tends to be the best way to connect and people are already bartering labor for goods.  I truly believe that the bankers have screwed themselves to a certain degree.  Their criminality is soooo apparent right now that before people give up anything of major value, I truly think they will hit the barter system first.  The sheeple may be lazy regarding changing the system, but I know many who do stuff just to poke TPTB in the eye.

MachoMan's picture

seems as though this has been happening for years with the cash for gold craze...

fonzannoon's picture

Anyone see the south park cash for gold episode? Tremendous.

buzzsaw99's picture

a gold standard + huge trade deficit = the usa has zero gold within a few short years

lemonobrien's picture

this is why its a scam. the USA is ripping off the world big time; and really only allowed to do it b/c of the military. We're the new nazis.

Kitler's picture

We are all Nazis now!

(Except us Kazis of course)

gdogus erectus's picture

Yes yes. Good point. Kinda like what happened in the 70s. Guess we can go on the gold standard after we have a balanced budget and no trade deficit. I'll be holding my breath over here.

Otoh, think how easy it will be to do just that after the collapse!

Bay of Pigs's picture

Invest in futures? Is this guy on drugs? LOL...

Tuco Benedicto Pacifico Juan Maria Ramirez's picture

To be fair, he mentioned speculating by buying  futures "options" which he perceived as having minimum downside risk (you could lose only the premium you paid) and large upside potential (underlying futures price supesedes your call option strike price) putting the buyer "in the money".


cougar_w's picture

I said this exact same thing yesterday on ZH the moment I heard there was talk of a gold-standard.

It's not likely to happen (nobody in TPTB really want it) but if it did it would NOT be a good thing for anyone holding physical gold. The UST is on record as still holding gold at $42 Troy ounce, and now you can see why they never bothered changing that. That is what they are going to pay when you step up to "sell" (that is surrender) your gold.

The only reason they would do this is to shore up the TBTF banks with hard collateral. And I wouldn't put it past them.

Cognitive Dissonance's picture

They ain't gonna back much fiat at $42 an ounce.

Just sayin'

dwdollar's picture

You're gonna trust the current leadership (who got us into this mess) with gold? Hah!

IF, they do try a gold standard it will be something like this...

They'll take it for $42. Then when they have it all, they'll create the new ratio at $5000 and it'll be increased every year. So basically, it will be a big rip-off that isn't even a true standard. Just more Orwellian Newspeak.

MachoMan's picture

how does that pass muster under the constitutional requirement that fair market value be offered for any government taking?  seems like something a simple jury trial could fix...  the fact that it keeps the value of its assets on its books at a price less than their fair market value has nothing to do with the value of the gold...