How Jim Rickards Arrives at $27,000 per Ounce—and His Method for Predicting Gold at $58,593
If you think that's a far fetched Gold Price, wait til you see the Fundamental Value of Gold calculated by Lynette Zang.
Jim Rickards' approach to predicting a $27,000 per ounce gold price is based on a theoretical revaluation of gold against the U.S. money supply. He begins by considering the current U.S. M1 money supply, which he states is $17.9 trillion. Rickards then applies a historical perspective, referencing the Federal Reserve's past requirement of 40% gold backing for the money supply. Using this benchmark, he calculates that 40% of the current M1 would equate to $7.2 trillion.
The crux of Rickards' calculation lies in relating this figure to the United States' gold reserves. He asserts that the U.S. holds 261.5 million troy ounces of gold. By dividing the $7.2 trillion (representing 40% of M1) by the total U.S. gold reserves, Rickards arrives at a figure of $27,533 per troy ounce, which he rounds down to $27,000 for his prediction.
It's worth noting that while this calculation uses M1, Rickards also discusses more extreme scenarios using M2 money supply. He suggests that using global M2 with 100% backing could push the price to $50,000 an ounce. In another instance, he proposes that using U.S. M2 (approximately $15 trillion at the time) with full backing would result in a gold price of $58,593 per ounce. However, these higher figures based on M2 are presented as more extreme possibilities, while the $27,000 figure derived from M1 appears to be Rickards' primary prediction in his most recent analysis.
This approach reflects Rickards' belief in the potential for a significant revaluation of gold in response to monetary policy and global economic conditions. While controversial, his method provides an interesting perspective on the relationship between gold prices and money supply in a theoretical context of partial gold backing.
Same argument using bullet points
Jim Rickards uses the following approach to arrive at a $27,000 per ounce gold price target:
He starts with the current U.S. M1 money supply, which he states is $17.9 trillion.
He assumes a 40% gold backing of the money supply, which was historically required by the Federal Reserve.
He calculates 40% of $17.9 trillion, which equals $7.2 trillion.
He then divides this $7.2 trillion figure by the total U.S. gold reserves, which he states is 261.5 million troy ounces.
This calculation yields:
$7.2 trillion / 261.5 million troy ounces = $27,533 per troy ounce
Rickards rounds this to $27,000 per ounce in his prediction.
It's important to note that this calculation uses M1, not M2 as mentioned above. Rickards does discuss using M2 in other contexts:
He mentions that using global M2 with 100% backing would yield a price of $50,000 an ounce.
In another source, he states that using U.S. M2 (about $15 trillion at the time) with 100% backing would result in a gold price of $58,593 per ounce.
Lynette Zang set up a scenario to arrive at fundamental value of Gold by taking US Debt divided by US gold holdings.
It would look like this:
To break down the calculation for the last row:$35,270,000,000,000 / 261,498,926.64 = $134,875.03 (rounded to the nearest cent)This revised table now shows:
The US gold reserves in both tonnes and troy ounces
The current US government debt
The amount of debt per troy ounce of gold if the entire gold reserves were used to offset the debt
The figure of $134,875.03 represents the theoretical price that gold would need to reach per troy ounce for the US gold reserves to fully cover the national debt. This calculation provides an interesting perspective on the relationship between US gold holdings and the national debt, though it's important to note that this is a hypothetical scenario and not a practical policy consideration.
Here is how AI wants to do the math calculation:
To divide 35,270,000,000,000 by 261,498,926.64, let's break it down step by step:
First, let's simplify the numbers:
35,270,000,000,000 = 3.527 × 10^13
261,498,926.64 ≈ 2.61498926 × 10^8Now, we can divide these simplified numbers:
(3.527 × 10^13) ÷ (2.61498926 × 10^8)When dividing numbers with exponents, we subtract the exponents:
3.527 ÷ 2.61498926 × 10^(13-8) = 3.527 ÷ 2.61498926 × 10^5Let's perform the division:
3.527 ÷ 2.61498926 ≈ 1.3487Now, we multiply by 10^5:
1.3487 × 10^5 = 134,870
Therefore, the result of dividing 35,270,000,000,000 by 261,498,926.64 is approximately 134,870.To verify, we can multiply 134,870 by 261,498,926.64, which gives us 35,269,999,995,576.8, which is very close to our original dividend (the small difference is due to rounding in our calculation).