Target Price On Gold – A Lot Higher Than Here

In 1955, the United States had enough gold (about $22bn at the $35/oz price) to cover its liabilities to other central banks and governments which totaled $13.5bn. So American gold reserves exceeded official dollars abroad by over 160%. 

By the summer of 1971, right before Nixon pulled us off the gold standard, America had just $10.2bn worth of gold compared to official foreign dollar holdings of $40bm. Thus, American had only 25% of what it needed to make good on commitments to exchange gold for dollars. 

Today, assuming the US gold holdings of 8133.5mt, the total value of US gold at $2300/oz is about $600bn. Total foreign debt holdings of USTs are now about $8trn. So America currently has only about 7-8% in gold as coverage to pay off its foreign debts. 

So when folks start to think about where the gold price needs to go to look something similar to what it looked like prior to 1971 leaving the gold standard, let’s just say, it needs to be materially higher. 

Getting back to 25% coverage would need about a 3x on the gold price from here. 

Getting back to 100% coverage would be well…let’s not even go there

Source: Three Days at Camp David by Jeffrey Garten.