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Gold, Silver & Precious Metals

We have mentioned elsewhere on this site a belief that Gold should be re-constituted as the Worlds reserve currency, replacing the fiat (debt) based US dollar, along with other precious metals such as Silver, Platinum, Palladium, Rhodium, Indium, Ruthenium and to a lesser extent any metal, such as Iron, Tin, Copper, Zinc, Aluminium, Nickel and many others including the Rare Earths. All metals are traded on the commodities markets, and at any given time, have what is known as a SPOT price, below is a link to a website that tracks the SPOT price of all metals:

Metal SPOT Prices

The main reasons for suggesting GOLD as the Worlds Reserve currency is it relative scarcity, and that fact that mankind through history has always coveted gold above any other metal. However, from an economic perspective the main attraction of gold is the fact that it is almost inflation proof, even over the span of many generations. As pointed out by G. Edward Griffin, an ounce of gold in Roman times (circa 2,000 years ago), would buy a quality toga, shoes and a good belt, today an ounce of gold (about £1,050.00) would buy a good quality suit, a fine pair of shoes and a good belt, it has been almost unaffected by inflation. Compare and contrast that with something like a house in  the Southeast of England, back in the 1960’s a 3-bedroom semi might have cost a few thousand pounds, may now cost between 1/4 and 1/2 a £million or more, all in just 50 years, and ALL due to inflation. As explained before, inflation over time is just a reduction of buying power. Ignoring the fact we operate on fiat currency, what was worth a pound in the 1970’s (such as a £1 coin) is now worth in real terms about 7 pence, a 93% reduction in buying power in just 40 years.

Gordon Brown sells off gold cheap 1999 – 2002

The UK government’s intention to sell gold and reinvest the proceeds in foreign currency deposits, including euros, was announced on 7 May 1999, when the price of gold stood at US$282.40 per ounce. The official stated reason for this sale was to diversify the assets of the UK’s reserves away from gold, which was deemed to be too volatile. The gold sales funded a like-for-like purchase of financial instruments in different currencies. Studies performed by HM Treasury had shown that the overall volatility of the UK’s reserves could be reduced by 20% from the sale.
The advance notice of the substantial sales drove the price of gold down by 10% by the time of the first auction on 6 July 1999. With many gold traders shorting, gold reached a low point of US$252.80 on 20 July. The UK eventually sold about 395 tons of gold over 17 auctions from July 1999 to March 2002, at an average price of about US$275 per ounce, raising approximately US$3.5 billion. By 2011, that quantity of gold would be worth over $19 billion. Please, do not insult anyones intelligence by suggesting Gordon Brown was a good or wise Chancellor, at the very least you don’t inform people of your intent to sell.

How Gold has performed

The image below, indicates how gold has performed over the past 10 years:

As shown, since 2005 Gold has increased rapidly in value, in a time when all Countries indebtedness is increasing, economies crashed in 2008, and most currencies have devalued. Over the last twelve months, gold briefly dipped  but has generally risen again, as shown in the next graph:

The next graph, shows how gold has performed over the last 60 days.

60 Day gold price per ounce

The next graph, shows how gold has performed over the last 30 days.

By way of comparison, the following table list the value of gold and silver in various currencies as of noon on Sunday 27th January 2013.

Currency Gold Price Silver Price
US Dollar 1,658.20 31.12
Euro 1,231.71 23.12
GB Pound Sterling 1,049.36 19.69
Japanese Yen 150,647.47 2,827.25
Chinese Yuan 10,316.66 193.62
Indian Rupee 89,199.55 1,674.04
Russian Ruble 49,723.28 933.17

The following conversions for weights (approximations) may be useful:

1 long ton (UK) is equal to 2,240 pounds or 32,666.67 troy ounces.

1 short ton (US) is equal to 2,000 pounds or 29,166.67 troy ounces.

1 metric tonne is equal to 32,150.75 troy ounces

1 troy ounce is equal to 31.1034768 grams.

The following three graphs show the price for silver over ten years, 5 years and 1 month respectively:

gold price charts provided by goldprice.org

silver price charts provided by silverprice.org

Other rare commodities could also function as reserve currency, such as diamonds, sapphires, emeralds, rubies, but these are rarer still and exist in lower quantities.

The only realistic way that gold and silver can inflate is if the market were to be suddenly flooded with large amounts, either from new finds, or from unknown previously unconfirmed sources.

In this websites “A viable solution?” section, Gold ( and other commodities) act as the global reserve currency, but each nation’s own currency is backed by the fixed and variable assets of the Country as an equity based currency. However these currencies cannot be used as global currencies, they are used to buy up quantities of Gold to act as global currency medium.

So based on the table figures above, the US would have to spend $53,312,373.65 to buy one metric tonne of gold, and the UK would have to spend £33,737,711.02 per metric tonne.

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