How Much Would Gold and Silver be if the Dollar were 100% Backed?

As you know from our prior commentary on the matter, the U.S. dollar used to be backed by gold. Up until the middle of the 20^th century, gold and silver were used as currency for common items.

A recent article we found fascinating examined the question of what would gold and silver prices be if the dollar was 100% backed by these metals.

Various “experts” are always saying how gold should be trading higher – usually in the $2000-$3000 range. Very few though say how they arrive at these figures. In reality, gold prices are where they should be RIGHT NOW

(In our defense, we make predictions of where gold may go, not where it ‘should’ be)

But with creeping inflation that could turn into hyperinflation, these conditions are likely to change, and change rather quickly. Once a critical mass of people understands the dangers of inflation, we could see gold and silver rise dramatically.

Consider the following: the U.S. Government spends $1.6 trillion more than it takes in taxes EACH YEAR!! Amazingly, if 100% of incomes were taxed, it still wouldn’t be enough to cover this deficit.

So to cover this deficit, the government and the U.S. Federal Reserve print money – this is inflation and eventually leads to higher prices.

But let’s assume for a minute the government decides to radically change course. Congress and the President immediately balance the federal budget and then revert back to gold/silver as the backing for the U.S. dollar.

What would the gold and silver price be?

It’s a rather easy calculation assuming the official figures of gold in the U.S. are correct.

Currently, there are over $18 trillion on deposit on the form of checking accounts, savings accounts and CDs. With 261 million ounces of ‘official’ U.S. gold, we divide 18 trillion by 261 million to arrive at a gold price of $68,966/oz. According to calculations explained in the article, silver would be in the neighborhood of $7000 per ounce in this situation.

However, many suspect the government has sold off its gold holdings to defend the dollar so in reality, the dollar in already worthless in any intrinsic sense. Check out the article on Commodity Online for more insight into their calculations. It’s certainly interesting to see how these estimates are made and what gold and silver prices would be under certain scenarios.