New Evidence on The Resource Costs of Irredeemable Paper Money

Tyler Watts
Miller College of Business
Ball State University
2000 W. University Ave.
Muncie, IN 47306
Lukas Snyder
Mathematics Department
Ball State University
2000 W. University Ave.
Muncie, IN 47306
Abstract

This paper compares estimates of the resource costs of monetary gold

accumulation under the classical (1880-1914) gold standard with estimates of the
resource costs associated with gold investment in the post-Bretton Woods era (1972present) for the United States. While the costs associated with monetary or investment
uses of precious metalsprimarily gold coins and bullionfell to historically low levels
during the great moderation era (1982-2007), they rose sharply during both the great
inflation era of the 1970s and the great recession era (2008-present), approaching
levels consistent with the average for the classical gold standard in terms of real gold
investment per capita. These results indicate that a transition to fiat money does not
eliminate the resource costs of investment or monetary uses of gold. Indeed, fiat money
volatility, whether realized as high and variable inflation rates, or the large monetary
expansion undertaken since the 2008 financial crisis, can generate gold investment on par
with the levels of monetary gold production of the classical gold standard.

0
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I. Introduction
I do not know of any attempt to measure the real resource costs of an
irredeemable paper currency and to compare such costs with the real resource
costs of a commodity currency. That is clearly a much needed research project.
(Friedman 1986, p. 646)
In 1986, Milton Friedman published a short article in the Journal of Political
Economy suggesting the possibility that real resource costs associated with the production
and use of money could be greater under the current fiat money regime than under the
commodity money regimes that preceded it. This article, and the broader implication
about the resource costs of paper money, however received scant attention. For by 1986,
the Feds disinflationary policies had come to full fruition, inaugurating the Great
Moderation which ushered in several decades of low inflation, low unemployment, and
strong real growth in the US economy. Although private investment in gold coins and
bullion as an inflation hedge, safe-haven asset had balloonedalong with golds price
in the 1970s, the Volcker disinflation brought the gold price crashing back down to earth,
erasing most of this investment demand.
25 years later, the world has experienced severe financial crises, recession, and
massive monetary interventions aimed at preventing a recurrence of the Great
Depression. While the world waits for the other shoe to drop in the European sovereign
debt crisis, many commentators believe that both households and governments in the
heavily indebted nations of Europe and the US are in for a deleveraging cycle. Many
economists believe central banks should (or at least will) accommodate this process by
resorting to explicitly higher inflation targets. Recent monetary expansion, and
expectations of continued expansion, have caused asset price booms in commodities. In
particular, goldthe traditional safe haven asset still widely used as a hedge against

1
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inflation and economic uncertaintyhas seen its price soar to new nominal highs, and its
real price remains elevated near all time highs, as shown in Figure 1.

Figure 1: Gold Prices, 1967-2011

Source: World Gold Council, Average annual gold prices since 1900
http://www.gold.org/download/value/stats/statistics/xls/annual_gold_price_from_1900.xls

The gold boom is not just a price boom, but a gold mining boom and a gold
investment boomi.e. the high price of gold is largely a result of the extra safe-haven
investment funds being diverted into gold during these times of fiscal and monetary
uncertainty, and this high price in turn induces mining entrepreneurs to direct additional
resources into gold production. In light of these rising resource costs of what we might
still call monetary gold production, Friedmans unanswered question takes on new
urgency and merit.

This article assesses the resource costs of fiat money by tracking the costs
associated with efforts by individuals, corporations, governments and central banks to
shield themselves from fiat money volatility. While there are several tools individual
investors can use for this purpose, such as inflation-protected securities, real estate and
other commodity investment vehicles, increased foreign exchange holdings, and so on,
accumulating gold is the most well-publicized means of hedging against fiat money
inflation. By comparing the net annual value of gold investment in the fiat money era
against the net annual value of monetary gold production in the classical gold standard
era, we seek to probe Friedmans argument and indicate under what conditions the
resource costs of irredeemable paper money may equal or even exceed those of a gold
standard.
The remainder of this paper proceeds as follows: Section II presents some
estimates of the resource costs of the classical gold standard. While standard estimates
assume that the classical-style gold standard requires on the order of 1-2% of annual real
output be dedicated towards monetary gold production (Friedman 1953; Friedman 1960),
recent revisions, based on a more realistic fractional reserve practice of the actual gold
standard era, revise this number significantly downward, to the .05% of GDP range
(White 1999). The estimates of scholars using the historically and theoretically accurate
fractional reserves practice serves as a baseline by which to compare resource costs of net
monetary gold production in both the modern pure fiat money regime and the classical
gold standard.
Section III presents new evidence weve compiled on the resource costs of gold
across both monetary regimes. We look at trends in gold investment both as a

percentage of GDP and as a percentage of total gold demand. We find that in the past
several years, not only has gold investment increased significantly as a fraction of total
gold demand, from roughly a 10% average in the pre-2008 years, to nearly 40% in the
post-2008 period, but gold coin and bullion holding has increased as well, approaching,
in real, per-capita terms, levels last observed during the classical gold standard era. These
data give weight to Friedmans suspicion that the direct resource cost of the gold and
silver accumulated in private hoards may have been as great as or greater than it would
have been under an effective gold standard (1986, p. 644).
Section IV concludes by noting that a real resource opportunity cost is not unique
to the gold standard. Fiat currencies are much more susceptible to devaluation and
deflation, and rational economic actors anticipate these risks by continuing to accumulate
monetary gold. If the costs associated with gold hoarding and other investment vehicles
directed at protecting wealth against fiat money volatility are seen to approach the levels
of monetary gold production under historical gold standards, then the argument that fiat
money avoids the resource costs of a gold standard falls short. Our results indicate that, in
2 major fiat money volatility episodes in the last 40 years, fiat money regimes have
drawn gold into monetary or investment uses at levels approaching those of the
classical gold standard.

II. Resource Costs of Money

A chief complaint against the gold standard is the ostensibly large opportunity
costs associated with real resources that must be dedicated to the mining and minting of
coins. As Friedman states,

The fundamental defect of a commodity standard from the point of view of

society as a whole, is that it requires the use of real resources to add to the stock
of money. People must work hard to dig gold out of the ground in South Africa
in order to rebury it in Fort Knox or some similar place. The necessity of using
real resources for the operation of a commodity standard establishes a strong
incentive for people to find ways to achieve the same result without employing
those resources. (1962, p. 40)

Friedman has supplied widely-cited estimates of this resource cost, in terms of the
percentage of total national income required to be directed towards gold mining each year
to add sufficient monetary gold stocks so as to maintain price level stability consistent
with real economic growth. Assuming a 100% reserve gold standard monetary system
(i.e. wherein all hand-to-hand currency consists of gold coin or fully backed gold
certificates, and all bank demand deposits represent 100% gold-backed warehouse
receipts for physical coin), Friedman variously estimates that:

[S]omething like 1 per cent of the national income would have had to be
devoted to the production of the currency commodities in order for prices to have
remained stable under a strict commodity standard (1953, p. 210).

[U]nder a pure commodity standard, the United States would at present be

devoting about 2 per cent of its national product or about $8 billion a year to
produce directly or indirectly through foreign trade additional amounts of the
monetary commodity to add to the amounts already in circulation or in
warehouses (1960, p. 5).

Alan Meltzer, building on Friedmans estimates, concluded that the resource cost
of a full commodity standard remains high (1983, p. 105). Meltzer used Friedmans
estimate of the annual monetary gold production cost as a fraction of GDP. According to
Meltzer, Friedmans 1.5% of GDP figure amounted to half of the average GDP growth
for the US economy during the historical period in question. Updating the figure

presumably on the basis of then-current data, specifically the fact that the ratio of money
to income had fallen since Friedmans initial reportMeltzer arrived at a gold cost figure
of 16 percent of the average, annual growth rate of output (1983, p. 105), which at the
time would have amounted to roughly .5% of GDP.

These resource costs would constitute a high burden by anyones standards, and
Friedman posits that the development of fractional reserve banking was largely the result
of efforts by individuals to economize on the resource costs of a strict 100% reserve gold
standard. In actual fact, historical gold standard monetary regimes have universally
featured substantially less than 100% reserves, yet Friedman strangely persists in
estimating the resource costs of an imagined 100% reserve system, rather than a more
realistic fractional reserve system.
More recently, monetary scholar Lawrence White sought to correct Friedmans
mistaken estimates of the resource costs of the gold standard. Whites research into
historical gold standard-cum-free banking monetary regimes indicates that, in a
financially developed economy with a mature banking system under a gold standard, the
ratio of gold reserves to banks demand liabilities (which constitute most of the currency
or circulating medium of an economy) can fall as low as 2%, or 1/50th of Friedmans
assumed 100% reserves scenario. Thus, White concludes, the amount of new gold
production required each year to maintain monetary equilibrium in the economy could
therefore be as low as .05% of GDPagain, 1/50th Friedmans 1960 estimate (1999, p.
47). Even a far more conservative 10% gold-to-bank demand liabilities ratio would
indicate an annual gold cost of only .25% of GDP. The upshot of these historically

realistic estimates of the resource cost of gold is that they are on an order of magnitude
below the traditional view of resource costs that Friedmans initial estimates had
established.
Even granting that Friedman and Meltzers traditional estimates of the resource
costs of the gold standard were far too high, the argument that fiat paper money can avoid
such resource costs altogether still must be taken into account. With a negligible marginal
cost of production, paper money obviously has the potential to drastically reduce the net
resource costs of the monetary regime. Moreover, due to the fact that a reserve
monopolist central bank is needed to install a fiat money regime in an economy, fiat
money canat least in theorybe supplied with perfect elasticity through activist
monetary policy. Thus fiat money offers the potential twin benefits, as compared against
the gold standard, of zero resource costs and an elastic supply that could obviate both
liquidity crises and deflationary adjustments in the face of adverse nominal spending
shocks in the economy. It is not our task here to address whether central banks have in
practice actually achieved a greater degree of monetary stability than the gold standards
they supersededwe leave this debate to other, far more capable scholars. We will
confine ourselves to an investigation of fiat moneys actual track record with respect to
resource costs. We simply seek here to investigate the question: has the imposition of
pure fiat money in the US obviated the demand for monetary gold, or at least
permanently reduced it to below-gold standard levels?
A great irony with fiat money is that the very feature, namely its negligible
marginal cost of production, that has the potential to spare resource costs of money can, if
abused, potentially resuscitate these very resource costs. Inflation through excessive fiat

money issuance can be, and has historically been, far more severe and prolonged than the
mild inflations associated with new gold discoveries in the historical gold standard
regimes. This kind of fiat money inflation, or even the very threat of it, can inaugurate a
flight back into gold as a safe-haven asset. As White explains,
[I]f the public is uncertain about the reliability of a fiat money, and buys newly
minted gold coins and bullion as an inflation hedge, flow resource costs of a
(quasi-) monetary kind are still incurred (White 1999, p. 43)

Roger Garrison echoes this point, noting that the resource costs of gold could be
driven higher within a fiat money system than under the gold standard itself:
[A] paper standard administered by an irresponsible monetary authority may drive
the monetary value of gold so high that more resource costs are incurred under the
paper standard than would have been incurred under a gold standard When an
irresponsible monetary authority begins to overissue paper money, market
participants begin to hoard gold, which stimulates the gold-mining industry and
drives up the resource costs (Garrison 1992, p. 70)

White goes on to estimate opportunity cost of fiat money in terms of the burden
placed on money holders and users by the much higher inflation rates that fiat money
tends to generate. White cites Rolnick and Weber (1997), who find an average inflation
rate of 6.5% per year (excluding hyperinflations) under historical fiat money regimes, vs.
a .5% deflation average for historical gold standard regimes. The 7 point differential in
the inflation rate implies, according to Whites conservative calculation, a deadweight
loss of .15% of national income arising from fiat money regimes (1999, p. 49). Thus,
when compared to Whites best-case estimate of a paltry .05% of GDP annual resource
cost of monetary gold production, White concludes that it is possible or indeed likely
based on actual experiences with even relatively well-behaved fiat money regimesthat
a country would be better off under a gold standard, at least as far as the opportunity costs

in terms of resource allocation and economic efficiency are concerned. White states, A
country where fiat money is managed so as to keep inflation below 4 percent can do
without a gold standard; but a high-inflation country would be better off with gold.
(1999, p. 49)

III. US Monetary Gold Production: Gold Standard vs. Fiat Currency

This brings us to our present task, which is to provide data comparing monetary
or investment gold production for two distinct periods of US monetary experience: the
classical gold standard era of 1879-1914, and the post-Bretton Woods, pure fiat money
era of 1972-present. The former period represents, of course, the zenith of the
international gold standard in the decades leading up to World War I. The latter period is
instructive because it provides two distinct periods of increased gold investment,
interspersed by a period declining gold prices and slack gold investment demand: 1. the
gold boom of the 1970s, brought on by inflationary volatility in fiat money; 2. the socalled great moderation in US inflation and interest rates from 1982-2007; 3. the
financial crisis and recession of 2007/2008-on, accompanied as it has been by massive
monetary interventions by central banks such as the Federal Reserve and the ECB.
Although the latter actions have not yet generated much measured inflation, they
nevertheless have encouraged the long term bull market in gold, leading the yellow metal
to new nominal price records in 2011.
Procedure: We set about to estimate yearly gold flow by taking the net annual
change in the monetary gold stock figures for the classical gold standard (CGS) era, and

the net annual gold investment demand (as opposed to industrial or jewelry demand) for
the modern fiat money era. Using the GDP deflator index, we converted the yearly gold
flow values into constant 2005 dollars, then divided these real monetary/investment gold
flow figures into real GDP for each year, to provide estimates in terms of the abovereferenced literature of the resource cost of gold in terms of the fraction of total output
devoted to net annual production of monetary or investment gold. Keeping in mind that
the awesome technological progress of the last 100 years has brought about a 24-fold
growth in real GDP for the US, while population has gone up only 3 fold, we find that the
inflation-adjusted value of monetary/investment gold production per capita gives the best
indication of the relative resource cost of gold. These figures are presented in table 1:

10

Table 1: Monetary and Investment Gold Figures, Gold Standard vs. Fiat Money Eras

Time Period
Antebellum
(1822-1860)
Early CGS
(1879-1896)
Late CGS
(1897-1913)

Data
Source
Friedman
and Schwartz
(1970)
Report of the
Director of
the Mint,
1907
Report of the
Director of
the Mint,
1907, 1913

Post
Financial
Crisis (20092012)
PostBretton
Woods
Average

Nominal
Gold Flow
per capita
$0.28

Real Gold Flow

per capita
(2005 $)
$5.67

$19,401,802

$362,032,973

0.176%

$0.42

$7.90

$81,511,508

$1,560,750,384

0.350%

$0.913

$17.28

$45,447,808

$864,720,920

0.249%

$0.66

$12.43

www.krugerrandpr
oof.com

$412,999,689

$1,017,279,206

0.019%

$1.85

$4.58

www.krugerrandpr
oof.com; World

$268,458,420

$351,382,230

0.004%

$1.01

$1.36

$3,954,439,123

$3,550,060,763

0.027%

$12.76

$11.45

$641,427,027

$817,066,663

0.010%

$2.31

$3.12

CGS
Average
1970s Gold
Boom (19721980)
Great
Moderation
(1982-2007)

Average annual values for each time period:

Real Gold
Flow/ Real
GDP
Net Monetary/
Net Monetary/
Investment Gold Investment Gold (constant
2005 $)
Flow, nominal $ Flow, 2005 $
$6,175,000
$123,101,638
0.266%

Gold Council,
Gold
Demand
Trends
World Gold
Council, Gold
Demand
Trends

Table 2 presents data on the shares of total gold production devoted to various uses,
primarily monetary or investment use as opposed to industrial and jewelry use.

1972-1996 Gold investment demand for the US is estimated at 50% of total Krugerrand production for
each year

11

Period
1880-1913 1
(CGS)
1975-1980
(1970s Gold Boom)
1982-2003
(early Great
Moderation)
1997-2007
(late Great
Moderation)
2008-2011
(Great Recession)

Data Source
Report of the Director
of the Mint, 1914
USGS, Gold End-Use
Statistics
USGS, Gold End-Use
Statistics
World Gold Council,
Gold Demand Trends
World Gold Council,
Gold Demand Trends

Annual average value of percentage of

calculated net yearly production used in:
Monetary/
Investment
Jewelry/ Industrial
33%

67%

60%

40%

53%

46%

91.6%

8.4%

60%

40%

IV. Conclusion
We have sought to shed some light on the patterns of gold use in US history, and
how they change with respect to the behavior of the underlying monetary regime. The
question as to whether the current fiat money system does actually deliver a lower
resource cost of gold, in terms of ongoing monetary gold holding, has become quite
relevant in the wake of the now decade-long gold price boom which has been accelerated
by recent economic and monetary policy developments. Our data indicate that when the
central bank has done a good job of maintaining price-level stability, such as the great
moderation, gold investment demand is light, and the value of net yearly real gold
investment, both total an in per-capita terms, falls well below that of the gold standard
era. However, in times of fiat money volatility, measured in terms of high and variable

These values were estimated by adding the total value of gold used in the industrial arts (Annual Report of
the Director of the Mint 1914) to our net gold flow data for each year to arrive a figure for total domestic
gold consumption. We then simply divided each category figure (monetary and industrial arts) into this
total to arrive at annual proportions; the figure here is based on the averages of each category for the stated
period.

12

inflation, or anticipation thereof, gold investment demand grows to levels that can rival
monetary gold production of the classical gold standard era.

References
Annual Report of the Director of the Mint for the Fiscal Year Ended June 30, 1907.
Annual Report of the Director of the Mint for the Fiscal Year Ended June 30, 1913.
Annual Report of the Director of the Mint for the Fiscal Year Ended June 30, 1914.
Friedman, Milton. 1953. Essays in Positive Economics. University of Chicago Press.
Friedman, Milton. 1960. A Program for Monetary Stability. New York: Fordham
University Press.
Friedman, Milton. 1962. Capitalism and Freedom. University of Chicago Press.
Friedman, Milton. 1986. The Resource Cost of Irredeemable Paper Money. Journal of
Political Economy 94 (3); 642-647.
Friedman, Milton and Anna J. Schwartz. 1970. Monetary Statistics of the United States:
Estimates, Sources, Methods. New York: Columbia University Press.
Garrison, Roger W. 1992. The Costs of a Gold Standard in Rockwell, Llewellyn H.,
ed., The Gold Standard: Perspectives in the Austrian School. Auburn, Alabama:
Ludwig von Mises Institute.
Meltzer, Alan. 1983. Monetary Reform in an Uncertain Environment. Cato Journal 3
(1); 93-112.
Rolnick, Arthur J & Weber, Warren E. 1997. "Money, Inflation, and Output under Fiat
and Commodity Standards." Journal of Political Economy 105(6); 1308-1321.
Street, Louise, et al. 2012. Gold Demand Trends. World Gold Council.
http://www.gold.org/investment/research/regular_reports/gold_demand_trends/
White, Lawrence H. 1999. The Theory of Monetary Institutions. Malden, MA: Blackwell
Publishers.
.

13

Data Appendix
I. Classical Gold Standardmonetary gold data

RealGDP(2005$)

GDP
Deflator

US
Population

Gold
Stock,
%
Real
GDP

Gold
Flow,%
Real
GDP

RealGold
Flow,%
RealGDP

Nominal
Gold
Flow
per
capita

RealGold
Flowper
capita

Year

GoldStock
(Nominal)

1879

$245,741,837

$32,541,860

$177,133,000,000

5.28

49,264,000

0.14%

0.0184%

0.3479%

$0.661

$12.511

1880

$351,841,206

$106,099,369

$191,814,000,000

5.4

50,262,000

0.18%

0.0553%

1.0243%

$2.111

$39.091

1881

$478,484,538

$126,643,332

$215,798,000,000

5.39

51,466,000

0.22%

0.0587%

1.0888%

$2.461

$45.653

1882

$506,757,715

$28,273,177

$227,250,000,000

5.37

52,893,000

0.22%

0.0124%

0.2317%

$0.535

$9.954

1883

$542,732,063

$35,974,348

$233,535,000,000

5.27

54,435,000

0.23%

0.0154%

0.2923%

$0.661

$12.540

1884

$545,500,797

$2,768,734

$229,685,000,000

5.13

55,826,000

0.24%

0.0012%

0.0235%

$0.050

$0.967

1885

$588,697,036

$43,196,239

$230,480,000,000

5.03

57,128,000

0.26%

0.0187%

0.3726%

$0.756

$15.032

1886

$590,774,461

$2,077,425

$249,225,000,000

4.89

58,258,000

0.24%

0.0008%

0.0170%

$0.036

$0.729

1887

$654,520,335

$63,745,874

$267,331,000,000

4.92

59,357,000

0.24%

0.0238%

0.4847%

$1.074

$21.828

1888

$705,818,855

$51,298,520

$282,701,000,000

4.9

60,614,000

0.25%

0.3703%

$0.846

$17.272

1889

$680,063,505

$25,755,350

$290,824,000,000

4.76

61,893,000

0.23%

0.0181%

0.0089%

0.1861%

$0.416

$8.742

1890

$695,563,029

$15,499,524

$319,077,000,000

4.73

63,056,000

0.22%

0.1027%

$0.246

$5.197

1891

$646,582,852

$48,980,177

$322,850,000,000

4.77

64,432,000

0.20%

0.3181%

$0.760

$15.937

1892

$664,275,335

$17,692,483

$339,301,000,000

4.82

65,920,000

0.20%

1893

$597,697,685

$66,577,650

$319,606,000,000

4.82

67,470,000

1894

$627,293,201

$29,595,516

$304,458,000,000

4.65

1895

$636,229,825

$8,936,624

$339,247,000,000

1896

$599,597,964

$36,631,861

1897

$696,270,542

1898

GoldFlow

0.0049%

0.0152%

0.1082%

$0.268

$5.568

0.19%

0.0052%

0.0208%

0.4322%

$0.987

$20.472

68,910,000

0.21%

0.0097%

0.2090%

$0.429

$9.236

4.6

70,076,000

0.19%

0.0573%

$0.128

$2.772

$333,642,000,000

4.64

71,188,000

0.18%

0.0026%

0.0110%

0.2366%

$0.515

$11.090

$96,672,578

$348,023,000,000

4.64

72,441,000

0.20%

0.0278%

0.5987%

$1.335

$28.761

$861,514,780

$165,244,238

$386,074,000,000

4.69

73,600,000

0.22%

0.0428%

0.9126%

$2.245

$47.871

1899

$962,865,505

$101,350,725

$412,475,000,000

4.73

74,793,000

0.23%

0.0246%

0.5195%

$1.355

$28.649

1900

$1,034,439,264

$71,573,759

$422,843,000,000

4.86

76,094,000

0.24%

0.0169%

0.3483%

$0.941

$19.354

1901

$1,124,652,818

$90,213,554

$445,287,000,000

77,584,000

0.25%

0.0203%

0.4052%

$1.163

$23.256

1902

$1,192,395,607

$67,742,789

$468,159,000,000

5.14

79,163,000

0.25%

0.0145%

0.2815%

$0.856

$16.649

1903

$1,249,552,756

$57,157,149

$481,821,000,000

5.38

80,632,000

0.26%

0.0119%

0.2205%

$0.709

$13.176

1904

$1,327,672,672

$78,119,916

$464,761,000,000

5.53

82,166,000

0.29%

0.0168%

0.3040%

$0.951

$17.193

1905

$1,357,881,186

$30,208,514

$517,201,000,000

5.57

83,822,000

0.26%

0.0058%

0.1049%

$0.360

$6.470

1906

$1,472,995,209

$115,114,023

$538,350,000,000

5.77

85,450,000

0.27%

0.3706%

$1.347

$23.347

1907

$1,466,056,632

$6,938,577

$552,184,000,000

6.13

87,008,000

0.27%

0.0214%

0.0013%

0.0205%

$0.080

$1.301

1908

$1,615,140,575

$149,083,943

$492,484,000,000

6.12

88,710,000

0.33%

0.0303%

0.4946%

$1.681

$27.460

1909

$1,640,567,131

$25,426,556

$528,081,000,000

6.1

90,490,000

0.31%

0.0789%

$0.281

$4.606

1910

$1,635,424,513

$5,142,618

$533,767,000,000

6.26

92,407,000

0.31%

0.0048%

0.0010%

0.0154%

$0.056

$0.889

1911

$1,753,134,114

$117,709,601

$551,061,000,000

6.23

93,863,000

0.32%

0.0214%

0.3429%

$1.254

$20.129

1912

$1,812,856,241

$59,722,127

$576,879,000,000

6.48

95,335,000

0.31%

0.0104%

0.1598%

$0.626

$9.667

14

1913

$1,866,619,157

$53,762,916

$599,651,000,000

6.53

97,225,000

0.31%

0.0090%

0.1373%

$0.553

$8.468

II. Post-Bretton Woods Era/ Early Great ModerationUS gold investment

USPopulation

GoldFlow%
RealGDP

RealGold
Flow%
RealGDP

NominalGold
FlowperCapita

Real
Gold
Flow
per
capita

21.12

198,752,000

0.0000%

0.0001%

$0.005

$0.025

$4,133,400,000,000

22.01

200,745,000

0.0000%

0.0001%

$0.004

$0.018

$821,800

$4,261,800,000,000

23.1

202,736,000

0.0000%

0.0001%

$0.004

$0.018

$8,302,787

$4,151,393

$4,269,900,000,000

24.32

205,089,000

0.0001%

0.0004%

$0.020

$0.083

1971

$22,937,760

$11,468,880

$4,413,300,000,000

25.53

207,692,000

0.0003%

0.0010%

$0.055

$0.216

1972

$32,392,212

$16,196,106

$4,647,700,000,000

26.63

209,924,000

0.0003%

0.0013%

$0.077

$0.290

1973

$84,697,596

$42,348,798

$4,917,000,000,000

28.11

211,939,000

0.0009%

0.0031%

$0.200

$0.711

1974

$512,133,019

$256,066,510

$4,889,900,000,000

30.66

213,898,000

0.0052%

0.0171%

$1.197

$3.905

1975

$775,331,428

$387,665,714

$4,879,500,000,000

33.56

215,981,000

0.0079%

0.0237%

$1.795

$5.348

1976

$376,785,222

$188,392,611

$5,141,300,000,000

35.49

218,086,000

0.0037%

0.0103%

$0.864

$2.434

1977

$494,583,892

$247,291,946

$5,377,700,000,000

37.75

220,289,000

0.0046%

0.0122%

$1.123

$2.974

1978

$1,163,570,840

$581,785,420

$5,677,600,000,000

40.4

222,629,000

0.0102%

0.0254%

$2.613

$6.468

1979

$1,518,924,704

$759,462,352

$5,855,000,000,000

43.76

225,106,000

0.0130%

0.0296%

$3.374

$7.710

1980

$2,475,575,482

$1,237,787,741

$5,839,000,000,000

47.75

227,726,000

0.0212%

0.0444%

$5.435

$11.383

1981

$1,788,821,687

$894,410,843

$5,987,200,000,000

52.23

230,008,000

0.0149%

0.0286%

$3.889

$7.445

1982

$1,500,960,709

$750,480,354

$5,870,900,000,000

55.41

232,218,000

0.0128%

0.0231%

$3.232

$5.833

1983

$1,521,621,500

$760,810,750

$6,136,200,000,000

57.6

234,333,000

0.0124%

0.0215%

$3.247

$5.637

1984

$966,784,199

$483,392,100

$6,577,100,000,000

59.77

236,394,000

0.0073%

0.0123%

$2.045

$3.421

1985

$404,348,679

$202,174,340

$6,849,300,000,000

61.58

238,506,000

0.0030%

0.0048%

$0.848

$1.377

1986

$13,942,494

$6,971,247

$7,086,500,000,000

62.94

240,683,000

0.0001%

0.0002%

$0.029

$0.046

Year

Krugerrand
Mintage

Est.US
Krugerrandsales

RealGDP(2005$)

GDP
deflator

1967

$2,097,000

$1,048,500

$3,942,500,000,000

1968

$1,547,600

$773,800

1969

$1,643,600

1970

1987

$59,496,153

$29,748,076

$7,313,300,000,000

64.76

242,843,000

0.0004%

0.0006%

$0.122

$0.189

1988

$286,493,780

$143,246,890

$7,613,900,000,000

66.99

245,061,000

0.0019%

0.0028%

$0.585

$0.873

1989

$87,168,862

$43,584,431

$7,885,900,000,000

69.52

247,387,000

0.0006%

0.0008%

$0.176

$0.253

1990

$157,147,825

$78,573,912

$8,033,900,000,000

72.2

250,181,000

0.0010%

0.0014%

$0.314

$0.435

1991

$108,131,152

$54,065,576

$8,015,100,000,000

74.76

253,530,000

0.0007%

0.0009%

$0.213

$0.285

1992

$2,500,826

$1,250,413

$8,287,100,000,000

76.53

256,922,000

0.0000%

0.0000%

$0.005

$0.006

1993

$73,696,888

$36,848,444

$8,523,400,000,000

78.22

260,282,000

0.0004%

0.0006%

$0.142

$0.181

1994

$72,913,555

$36,456,778

$8,870,700,000,000

79.87

263,455,000

0.0004%

0.0005%

$0.138

$0.173

1995

$35,312,887

$17,656,444

$9,093,700,000,000

81.54

266,588,000

0.0002%

0.0002%

$0.066

$0.081

1996

$10,146,099

$5,073,049

$9,433,900,000,000

83.09

269,714,000

0.0001%

0.0001%

$0.019

$0.023

15

III. Late Great ModerationGreat Recession: US Gold Investment

USPopulation

GoldFlow%
RealGDP

RealGold
Flow%
RealGDP

NominalGold
FlowperCapita

Real
Gold
Flow
per
capita

84.56

272,958,000

0.0059%

0.0069%

$2.120

$2.507

$10,283,500,000,000

85.51

276,154,000

0.0076%

0.0088%

$2.812

$3.289

$784,718,459

$10,779,800,000,000

86.77

279,328,000

0.0073%

0.0084%

$2.809

$3.238

2000

$167,489,991

$11,226,000,000,000

88.65

282,418,000

0.0015%

0.0017%

$0.593

$0.669

2001

$207,444,039

$11,347,200,000,000

90.65

285,335,000

0.0018%

0.0020%

$0.727

$0.802

2002

$214,484,465

$11,543,100,000,000

92.19

288,133,000

0.0019%

0.0020%

$0.744

$0.807

2003

$247,145,380

$11,836,400,000,000

94.13

290,845,000

0.0021%

0.0022%

$0.850

$0.903

2004

$265,279,509

$12,246,900,000,000

96.78

293,502,000

0.0022%

0.0022%

$0.904

$0.934

2005

$408,442,124

$12,623,000,000,000

100

296,229,000

0.0032%

0.0032%

$1.379

$1.379

2006

$638,453,272

$12,958,500,000,000

103.24

299,052,000

0.0049%

0.0048%

$2.135

$2.068

2007

$375,836,188

$13,206,400,000,000

106.23

302,025,000

0.0028%

0.0027%

$1.244

$1.171

2008

$2,202,436,738

$13,161,900,000,000

108.57

304,831,000

0.0167%

0.0154%

$7.225

$6.655

2009

$3,605,771,945

$12,703,100,000,000

109.73

307,483,000

0.0284%

0.0259%

$11.727

$10.687

2010

$4,220,522,857

$13,088,000,000,000

111

310,106,000

0.0322%

0.0291%

$13.610

$12.261

2011

$4,037,022,568

$13,315,100,000,000

113.34

312,041,000

0.0303%

0.0268%

$12.937

$11.415

Year

USGoldDemand
(WorldGold
Council)

1997

RealGDP(2005$)

GDP
deflator

$578,594,540

$9,854,300,000,000

1998

$776,678,137

1999

IV. Monetary vs Industrial gold use, CGS

Monetary%ofTotal

IndustrialArtsGold
Consumption

Industrial%of
Total

$53,000,000

83.99%

$10,105,432

16.01%

$78,566,742

$68,000,000

86.55%

$10,566,742

13.45%

1882

$105,514,707

$95,000,000

90.03%

$10,514,707

9.97%

1883

$51,435,462

$36,000,000

69.99%

$15,435,462

30.01%

1884

$43,500,000

$29,000,000

66.67%

$14,500,000

33.33%

1885

$20,824,742

$9,000,000

43.22%

$11,824,742

56.78%

1886

$55,944,719

$41,418,029

74.03%

$14,526,690

25.97%

1887

$52,018,966

$37,208,620

71.53%

$14,810,346

28.47%

1888

$79,871,539

$63,356,697

79.32%

$16,514,842

20.68%

1889

$16,775,685

$78,629

0.47%

$16,697,056

99.53%

1890

$1,868,992

$15,786,968

844.68%

$17,655,960

944.68%

1891

$35,009,037

$15,322,121

43.77%

$19,686,916

56.23%

1892

$2,940,830

$16,388,244

557.27%

$19,329,074

657.27%

1893

$21,312,941

$36,748,842

172.43%

$15,435,901

72.43%

1894

$28,197,526

$15,538,922

55.11%

$12,658,604

44.89%

Year

Est.TotalGoldFlow

MonetaryGoldFlow

1880

$63,105,432

1881

16

1895

$27,280,121

$42,709,206

156.56%

$15,429,085

56.56%

1896

$14,393,912

$27,789,846

193.07%

$13,395,934

93.07%

1897

$110,205,767

$96,335,536

87.41%

$13,870,231

12.59%

1898

$67,976,384

$52,410,505

77.10%

$15,565,879

22.90%

1899

$220,400,013

$200,552,835

90.99%

$19,847,178

9.01%

1900

$92,527,863

$70,379,721

76.06%

$22,148,142

23.94%

1901

$118,516,047

$94,647,091

79.86%

$23,868,956

20.14%

1902

$91,418,408

$63,735,561

69.72%

$27,682,847

30.28%

1903

$102,510,492

$73,446,941

71.65%

$29,063,551

28.35%

1904

$101,005,227

$72,349,264

71.63%

$28,655,963

28.37%

1905

$61,076,424

$27,867,809

45.63%

$33,208,615

54.37%

1906

$111,755,343

$72,628,580

64.99%

$39,126,763

35.01%

1907

$213,196,730

$172,469,660

80.90%

$40,727,070

19.10%

1908

$53,293,251

$21,817,160

40.94%

$31,476,091

59.06%

1909

$63,055,325

$25,426,556

40.32%

$37,628,769

59.68%

1910

$36,644,534

$5,142,618

14.03%

$41,787,152

114.03%

1911

$158,543,893

$117,709,601

74.24%

$40,834,292

25.76%

1912

$103,699,384

$59,722,127

57.59%

$43,977,257

42.41%

1913

$99,626,982

$53,762,916

53.96%

$45,864,066

46.04%

$69,042,803

$46,662,310

67.58%

$23,071,186

33.42%

AVG:

V. Monetary vs. Industrial Gold Use, Post-Bretton Woods to 2003 (USGS Gold End-Use
Statistics)
TotalDomesticGold
consumption

Year

InvestmentValue

Investment%ofTotal

Jewelry&ArtsValue

Jewelry&Arts
%ofTotal

1975

$1,075,726,413

$475,802,067.38

44.23%

$605,096,107.43

56.25%

1976

$890,326,187

$328,859,222.08

36.94%

$561,466,964.52

63.06%

1977

$1,083,720,363

$404,018,556.48

37.28%

$684,454,966.27

63.16%

1978

$1,510,960,727

$609,358,647.24

40.33%

$901,602,080.10

59.67%

1979

$2,351,309,294

$895,268,392.20

38.08%

$1,416,688,444.80

60.25%

1980

$3,361,355,685

$1,423,632,996.00

42.35%

$1,937,722,689.00

57.65%

1981

$2,233,187,622

$724,676,778.00

32.45%

$1,508,510,844.00

67.55%

1982

$2,139,693,386

$846,206,424.00

39.55%

$1,293,486,962.40

60.45%

1983

$2,644,587,979

$1,335,925,886.40

50.52%

$1,308,662,092.80

49.48%

1984

$2,158,790,902

$1,032,969,840.30

47.85%

$1,125,821,061.90

52.15%

1985

$1,834,518,942

$856,108,839.60

46.67%

$978,410,102.40

53.33%

1986

$2,224,314,029

$911,022,235.20

40.96%

$1,313,291,793.60

59.04%

1987

$2,773,673,040

$1,149,709,032.00

41.45%

$1,623,964,007.70

58.55%

17

1988

$2,866,170,604

$1,292,586,742.80

45.10%

$1,573,583,860.80

54.90%

1989

$2,596,876,340

$1,175,944,003.20

45.28%

$1,420,932,337.20

54.72%

1990

$2,441,362,761

$986,409,196.56

40.40%

$1,454,953,564.93

59.60%

1991

$2,211,997,096

$873,156,748.28

39.47%

$1,338,840,347.36

60.53%

1992

$2,243,972,896

$1,028,026,991.68

45.81%

$1,215,945,904.14

54.19%

1993

$2,475,307,471

$1,422,723,452.70

57.48%

$1,052,584,017.85

42.52%

1994

$2,765,474,611

$1,827,188,582.40

66.07%

$938,286,028.80

33.93%

1995

$2,851,672,888

$1,777,666,216.18

62.34%

$1,074,006,672.27

37.66%

1996

$2,930,065,297

$1,782,975,904.28

60.85%

$1,147,089,392.96

39.15%

1997

$2,820,269,049

$1,362,243,163.39

48.30%

$1,458,025,885.82

51.70%

1998

$6,309,834,653

$3,292,087,644.86

52.17%

$2,071,744,810.99

32.83%

1999

$3,578,791,512

$1,381,287,952.04

38.60%

$2,197,503,560.07

61.40%

2000

$3,024,097,093

$1,381,931,609.06

45.70%

$1,642,165,483.49

54.30%

2001

$2,239,530,312

$679,701,806.78

30.35%

$1,559,828,505.31

69.65%

2002

$2,628,921,586

$1,005,761,667.41

38.26%

$1,623,159,918.69

61.74%

2003

$2,371,633,037

$911,267,866.55

38.42%

$1,460,365,170.75

61.58%

VI. Monetary vs. Industrial Gold Use, 1997-2011 (World Gold Council)
Year

TotalGold
Demand($
millions)

GoldInvestment
($millions)

1997

$3,933

$579

1998

$4,090

1999

Investment
%ofTotal

Jewelry&Arts
(millions$)

Jewelry&
Arts%of
Total

14.71%

$3,354

85.29%

$777

18.99%

$3,313

81.01%

$4,149

$785

18.91%

$3,365

81.09%

2000

$3,283

$167

5.10%

$3,450

105.10%

2001

$3,601

$207

5.76%

$3,393

94.24%

2002

$4,122

$214

5.20%

$3,907

94.80%

2003

$4,438

$247

5.57%

$4,192

94.46%

2004

$4,912

$265

5.40%

$4,646

94.57%

2005

$5,445

$408

7.50%

$5,037

92.50%

2006

$6,670

$638

9.57%

$6,032

90.43%

2007

$6,215

$376

6.05%

$5,839

93.95%

2008

$7,273

$2,202

30.28%

$5,070

69.72%

2009

$8,344

$3,606

43.21%

$4,741

56.82%

2010

$9,317

$4,221

45.30%

$5,096

54.70%

2011

$9,848

$4,037

41.00%

$5,816

59.06%

18