For many millennia gold has served mankind as a monetary asset, a financial asset, and as a valuable commodity. In the late 1960s and early 1970s, the world moved away from using gold as the international monetary system’s choice for balance of payment settlements. What followed was a decade of currency crisis, periods of high price inflation, and market volatility. The US dollar’s value, often deemed as “good as gold”, came under severe scrutiny. The gold price per troy ounce in US dollar terms exploded from a once fixed price of $35 oz to over $800 in early 1980.
Today, physical gold bullion bars are still used as monetary reserves by governments and their central banks, but gold is no longer the “anchor” of any fiat currency system in existence today. Whether this fact changes in the future or not remains debatable.
What we will examine below is gold (and silver’s) share of global wealth today. Credit Suisse estimates total world wealth in terms of US dollars to be $256 trillion. This estimation does not take into account exotic derivatives whose size and scale dwarf even the aforementioned figure.
If you squint your eyes hard enough, you can likely make out the thin golden layer at the top of the 2014 bar in the chart above. Can you make out which financial asset classes are expanding most in that 34-year graph?
Once the final ties from gold to currency were severed, gold was deprecated and reduced as a financial asset. This was not mainly due to a fall in gold’s value but more so due to an aggressive expansion in other forms of modern day wealth (e.g. equities, private and public bonds / debts, currency supplies, bank deposits, money market funds, etc.).
According to CPM Group, in 1960, gold represented some 5% of global financial assets. By 1980, gold’s share was down to 2.74%. In other words, $1 in gold value during 1960 while there was $19 in other global financial assets whereas by 1980 the ratio was $1 gold vs $33.75 in global financial assets (even as gold was hitting then record price highs). Note too how gold’s now still record nominal 2011 price of over $1,900 oz caused the yellow precious metal’s share of global financial assets to increase at the time versus other financial asset values. As of 2015, the projected ratio of gold vs global financial values was $1 gold vs $195.56 global financial assets.
According to this chart on silver as a percentage of global financial assets, as recent as 2015 there was $1 per silver versus $9,090.90 of global financial assets. In early 1980, silver was hitting record high of some $50 oz, according to the chart data that same year $1 of silver versus $400 of global financial assets at the time. Thus we now live in a world where silver’s global value has been outpaced by 22X’s by other global financial assets (mostly paper asset e.g. equities, bonds, debts, currency expansion, etc.).
Today the world is consistently achieving record financial asset and debt levels, many are calling into question the solvency of many entities (mainly western governments) ultimate abilities to pay back record IOUs and promises made. Ultimately many bullion buyers today are betting that John Exter’s pyramid will be proven sound and that the value pendulum will swing away from paper and debt asset values back towards the favor of the historic physical monetary metal of gold (and thus by association also enhance silver bullion’s future values too).