watts, snyder, new evidence on the resource costs of irredeemable paper money
TRANSCRIPT
Electronic copy available at: http://ssrn.com/abstract=2208041
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 (1972-present) for the United States. While the costs associated with monetary or “investment” uses of precious metals—primarily gold coins and bullion—fell 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.
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Electronic copy available at: http://ssrn.com/abstract=2208041
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 Fed’s 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 ballooned—along with gold’s 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, gold—the traditional “safe haven” asset still widely used as a hedge against
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inflation and economic uncertainty—has 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” boom—i.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, Friedman’s unanswered question takes on new
urgency and merit.
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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 Friedman’s 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 we’ve compiled on the resource costs of gold
across both monetary regimes. We look at trends in gold “investment” both as a
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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 Friedman’s 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,
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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 1½ 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 2½ 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 Friedman’s estimates, concluded that “the resource cost
of a full commodity standard remains high” (1983, p. 105). Meltzer used Friedman’s
estimate of the annual monetary gold production cost as a fraction of GDP. According to
Meltzer, Friedman’s 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—
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presumably on the basis of then-current data, specifically the fact that the ratio of money
to income had fallen since Friedman’s initial report—Meltzer 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 anyone’s 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 Friedman’s
mistaken estimates of the resource costs of the gold standard. White’s 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 Friedman’s
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 GDP—again, 1/50th Friedman’s 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
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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 Friedman’s initial estimates had
established.
Even granting that Friedman and Meltzer’s 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 can—at least in theory—be 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 superseded—we leave this debate to other, far more capable scholars. We will
confine ourselves to an investigation of fiat money’s 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
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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 White’s conservative calculation, a deadweight
loss of .15% of national income arising from fiat money regimes (1999, p. 49). Thus,
when compared to White’s 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 regimes—that
a country would be better off under a gold standard, at least as far as the opportunity costs
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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 so-
called “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
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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 above-
referenced 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:
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Table 1: Monetary and Investment Gold Figures, Gold Standard vs. Fiat Money Eras
Average annual values for each time period:
Time Period Data Source
Net Monetary/ Investment Gold Flow, nominal $
Net Monetary/ Investment Gold Flow, 2005 $
Real Gold Flow/ Real GDP (constant 2005 $)
Nominal Gold Flow per capita
Real Gold Flow per capita (2005 $)
Antebellum (1822-1860)
Friedman and Schwartz
(1970)
$6,175,000
$123,101,638
0.266% $0.28 $5.67
Early CGS (1879-1896)
Report of the Director of the Mint,
1907
$19,401,802
$362,032,973
0.176% $0.42 $7.90
Late CGS (1897-1913)
Report of the Director of the Mint,
1907, 1913
$81,511,508
$1,560,750,384
0.350% $0.913 $17.28
CGS Average
$45,447,808
$864,720,920
0.249%
$0.66 $12.43
1970s Gold Boom (1972-1980)♦
www.krugerrandproof.com $412,999,689
$1,017,279,206
0.019%
$1.85 $4.58
Great Moderation (1982-2007)♦
www.krugerrandproof.com; World Gold Council,
Gold Demand Trends
$268,458,420
$351,382,230
0.004%
$1.01 $1.36
Post Financial Crisis (2009-2012)
World Gold Council, Gold
Demand Trends
$3,954,439,123
$3,550,060,763
0.027%
$12.76 $11.45
Post-Bretton Woods Average
$641,427,027
$817,066,663
0.010%
$2.31 $3.12
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…
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Annual average value of percentage of calculated net yearly production used in:
Period Data Source Jewelry/ Industrial Monetary/ Investment
1880-19131
(CGS) Report of the Director of the Mint, 1914 33% 67%
1975-1980 (1970s Gold Boom)
USGS, Gold End-Use Statistics 60% 40%
1982-2003 (“early” Great Moderation)
USGS, Gold End-Use Statistics 53% 46%
1997-2007 (“late” Great Moderation)
World Gold Council, Gold Demand Trends 91.6% 8.4%
2008-2011 (Great Recession)
World Gold Council, Gold Demand Trends 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
1 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.
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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. .
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Data Appendix I. Classical Gold Standard—monetary gold data
Year Gold Stock (Nominal) Gold Flow Real GDP (2005 $)
GDP Deflator
US Population
Gold Stock,
% Real GDP
Gold Flow, %
Real GDP
Real Gold Flow, %
Real GDP
Nominal Gold Flow per
capita
Real Gold Flow per
capita
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% 0.0181% 0.3703% $0.846 $17.272
1889 $680,063,505 ‐$25,755,350 $290,824,000,000 4.76 61,893,000 0.23% ‐
0.0089% ‐0.1861% ‐$0.416 ‐$8.742
1890 $695,563,029 $15,499,524 $319,077,000,000 4.73 63,056,000 0.22% 0.0049% 0.1027% $0.246 $5.197
1891 $646,582,852 ‐$48,980,177 $322,850,000,000 4.77 64,432,000 0.20% ‐
0.0152% ‐0.3181% ‐$0.760 ‐$15.937
1892 $664,275,335 $17,692,483 $339,301,000,000 4.82 65,920,000 0.20% 0.0052% 0.1082% $0.268 $5.568
1893 $597,697,685 ‐$66,577,650 $319,606,000,000 4.82 67,470,000 0.19% ‐
0.0208% ‐0.4322% ‐$0.987 ‐$20.472
1894 $627,293,201 $29,595,516 $304,458,000,000 4.65 68,910,000 0.21% 0.0097% 0.2090% $0.429 $9.236
1895 $636,229,825 $8,936,624 $339,247,000,000 4.6 70,076,000 0.19% 0.0026% 0.0573% $0.128 $2.772
1896 $599,597,964 ‐$36,631,861 $333,642,000,000 4.64 71,188,000 0.18% ‐
0.0110% ‐0.2366% ‐$0.515 ‐$11.090
1897 $696,270,542 $96,672,578 $348,023,000,000 4.64 72,441,000 0.20% 0.0278% 0.5987% $1.335 $28.761
1898 $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 5 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% 0.0214% 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% ‐
0.0013% ‐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% 0.0048% 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% ‐
0.0010% ‐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
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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 Moderation—US gold investment
Year Krugerrand
Mintage Est. US
Krugerrand sales Real GDP (2005 $) GDP
deflator US Population Gold Flow %
Real GDP
Real Gold Flow %
Real GDP Nominal Gold
Flow per Capita
Real Gold Flow per
capita
1967 $2,097,000 $1,048,500 $3,942,500,000,000 21.12 198,752,000 0.0000% 0.0001% $0.005 $0.025
1968 $1,547,600 $773,800 $4,133,400,000,000 22.01 200,745,000 0.0000% 0.0001% $0.004 $0.018
1969 $1,643,600 $821,800 $4,261,800,000,000 23.1 202,736,000 0.0000% 0.0001% $0.004 $0.018
1970 $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
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 Moderation—Great Recession: US Gold Investment
Year
US Gold Demand (World Gold
Council) Real GDP (2005 $) GDP
deflator US Population Gold Flow %
Real GDP
Real Gold Flow %
Real GDP Nominal Gold
Flow per Capita
Real Gold Flow per
capita
1997 $578,594,540 $9,854,300,000,000 84.56 272,958,000 0.0059% 0.0069% $2.120 $2.507
1998 $776,678,137 $10,283,500,000,000 85.51 276,154,000 0.0076% 0.0088% $2.812 $3.289
1999 $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
IV. Monetary vs Industrial gold use, CGS
Year Est. Total Gold Flow Monetary Gold Flow Monetary % of Total “Industrial Arts” Gold
Consumption Industrial % of
Total
1880 $63,105,432 $53,000,000 83.99% $10,105,432 16.01%
1881 $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%
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%
AVG: $69,042,803 $46,662,310 67.58% $23,071,186 33.42%
V. Monetary vs. Industrial Gold Use, Post-Bretton Woods to 2003 (USGS Gold End-Use Statistics)
Year Total Domestic Gold consumption Investment Value Investment % of Total Jewelry & Arts Value
Jewelry & Arts % of Total
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% $1,460,365,170.75 61.58%
VI. Monetary vs. Industrial Gold Use, 1997-2011 (World Gold Council)
Year
Total Gold Demand ($ millions)
Gold Investment ($ millions)
Investment % of Total Jewelry & Arts
(millions $)
Jewelry & Arts % of
Total
1997 $3,933 $579 14.71% $3,354 85.29%
1998 $4,090 $777 18.99% $3,313 81.01%
1999 $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