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Fun With Gold Numbers!
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(May 8, 2005) Do you like big numbers with lots of zeroes? Do you know how much gold there is in the world? Do you know what the current and, worse still, projected US federal deficit is? Which do you think is bigger, the Microsoft Corporation, or all the gold in Fort Knox?
Let's start with the basics of how much gold there is in the world. Best estimates seem to range from 120,000 metric tonnes to as high as 150,000 metric tonnes. These estimates are for the sum total of all the gold that has been mined in the world since the beginning of time. Of course, no one knows for sure, but there are two things we do know: people and institutions are secretive about their gold holdings, and over the centuries gold is always recycled, and seldom thrown away.

Let's use 140,000 metric tonnes as our estimate. To visualize that much gold, imagine a cube some sixty feet on each side. That's it, that's all the gold in the world.

Incidentally, the metric tonne is a measure of 32,150 troy ounces. If you're interested in buying yourself a ton of gold, it would be more classy to acquire a metric 'tonne' which weighs about 2217 avoirdupois pounds, rather than the more pedestrian 2000 pound 'ton' which we use to measure trucks and elephants and such. With gold spot at $420 per troy ounce, a metric tonne of gold would set you back $13.5 million.

But here's our basic fun fact we glean out of all this: With gold spot at $420 per ounce, the total world supply of gold is worth some $1.89 trillion ($1,890,000,000,000).

To compare, our total current federal deficit is some $8 trillion ($8,000,000,000,000), that is to say, more than four times the value of all the gold ever mined since the beginning of time. Or, take the long view out 75 years and consider our unfunded liabilities for Medicare, Social Security, and the takeover of failing companies' pension plans, and the future federal indebtedness swells by another $34 trillion ($34,000,000,000,000) or so. So now you’re looking at a total deficit over the next 75 years of a staggering 22 times the value of all the gold ever mined, in the world, since the beginning of time - the whole 140,000 tonnes of the stuff.

But to be fair in these projections, we must take in account that every year some 2500 tonnes of gold are mined around the world, or some $33.75 billion ($33,750,000,000) worth, which in 75 years adds up to quite a bit. Barring the occurrence of some ‘peak gold’ event, and assuming a continuation of the present rate of 2500 tonnes annual world gold production, then by the year 2080 another 187,500 tonnes of gold will be added to the world’s known gold stocks. Using our $420/ounce figure, that’s another $2.5 trillion ($2,500,000,000,000) worth of gold, which added to today’s $1.89 trillion worth, yields a new sum of $4.39 trillion ($4,390,000,000,000) of the yellow stuff in the world. So our projected $42 trillion ($42,000,000,000,000) deficit would in fact not be 22 times the value of all the gold in the world, but a mere 9 times. That’s a relief, isn’t it? I mean, for our grandchildren and their kids.

But, really, trying to wrap our brains around the concepts of tens of trillions of dollars over the next few generations is beyond most of us. So let’s scale things down a bit.

Last week, for instance, our Federal Reserve Board ‘created’ $6 billion ($6,000,000,000) worth of paper money, while all the mines in the world could barely come up with $649 million ($649,000,000) in gold. And don’t forget that other central banks around the world are similarly cranking out their versions of money. But just our Fed alone is creating dollars at a pace some nine times faster than all the gold mines in the world create their version of money, that is, the more traditional brilliant yellow metal that must be dug up at great expense, rather than simply printed.

Other comparisons come to mind, when we think about big numbers involving gold. For instance, the Congressional Budget Office (CBO) projects that under current policies, the federal deficit will decline to $362 billion ($362,000,000,000) in 2005. So that lower figure (from a deficit of over $400 billion, aka $400,000,000,000, in 2004) means that the federal deficit for this year will be an amount greater than the value of all the gold mined in the world in ten years.

As another example of big numbers, the Microsoft Corporation, with a market cap today of $274.43 billion ($274,430,000,000), is theoretically worth more than eight times the value of All the Gold Mined in the World in a Year (A.G.M.W.Y.). Last year, Microsoft took in revenues of $39.82 billion ($39,820,000,000, or more than $100 from every US citizen), a number some 15% greater than the value of AGMWY. And with Microsoft’s cash stash of $37.59 billion ($37,590,000,000), Bill Gates could have acquired all the gold mined in the world last year, the whole 2500 tonnes, and still had enough money left over to buy lunch for everyone in America.

The United States' gold reserves, which are held by the Federal Reserve Bank, consist of some 8139 tonnes. Using a spot price of $420, that is about $109.8 billion ($109,800,000,000) worth of gold on hand, or about 3.25 times the value of AGMWY.

Incidentally, the value of US gold reserves is approximately 1.2% of the value of M3 as of June 2, 2005. M3 (currently some $8.73 trillion, or to put it the long way, $8,730,000,000,000) is the broadest measure of US money supply, i.e., the number of dollars in this country. So, roughly, you can say that each US $1.00 is ‘backed’ with about $0.012 worth of gold - a ratio of 83 to 1.

But let’s go back to the CBO’s most recent estimate that we will run a $362 billion budget deficit in 2005. Conveniently, that works out to almost exactly a billion dollars a day.

And just for fun, let’s imagine that the Fed announced tomorrow that it was going to stop running deficits - stop creating money out of thin air, stop floating bonds, and stop all those other sleights-of-hand that we use to spend, as a country, more than we take in. And that they were going to do that by selling gold to augment tax revenues, dipping into the US gold reserves that were built up over the course of many decades during the 20th century, but just enough to make up the difference between federal income and outgo.

In this unlikely scenario, all the gold would be gone in 109 days.

Alternately, our mighty gold reserves could be used to provide drugs for Medicare recipients for a year and a half, or we could empty out Fort Knox and buy, at today’s prices, not quite 40% of the stock of Microsoft.

 

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