What’s ahead for the U.S. dollar? Can’t all prices be figured as a product of supply and demand? The feds stopped reporting the growth in M3, the principal measure of the U.S. money supply, earlier this year. But Adrian Van Eck, who keeps track of these things, estimates that the world’s supply of dollars has increased by $3 trillion over the last three years. That is an astounding figure. But dollars have become such an abstraction… such whiffs of smoke… we don’t know what it means.
Let’s compare the figure to the world’s supply of gold. Gold stocks grow at about 1.7% annually. If the base of 155,000 tonnes above ground – the figure provided by the World Gold Council – is correct, that means we only have to do a little math to know where we are headed.
Let’s see… there are 28.35 grams to the ounce… and 1,000 grams to a kilogram… and 1,000 kilograms to a metric tonne. If we’re doing the figures right, we end up with an above-ground supply of more than 5 billion ounces… which, multiplied by 1.7% over three years… gives us an addition to the world’s gold supply of about 25 million ounces over the last three years.
In other words, for every ounce of gold added to the world supply over the last three years, the United States has added $120,000. But wait, we are talking about the world’s total supply of new gold. So, in addition to the new supply of dollars, we have to include the increases in the rest of the world’s money supplies. We won’t even try. Instead, we will guess that, altogether, the foreigners added about the same amount of new currency – about $3 trillion worth. Which gives us a total of about $240,000 for every ounce of gold added to the world supply.
What does this mean? We don’t know, exactly. But our guess is that the incremental dollar could be worth less than people think… and the incremental ounce of gold a bit more.