Gold Backing to Debt Ratio: A Reset Like in 1934 and 1980 Would Mean $25,000 Gold

In this article you’ll learn about the gold backing to debt ratio. And what the gold price would need to be at today to match two previous periods of debt reset…

How do you determine gold’s value? Or put another way what price should gold be at? In our view this is the wrong way round and the question should be how many ounces of gold should a given currency be valued at?

However, in the world we live in it is more common to think of a dollar price of gold, than an ounce weight in gold of the dollar.

This video care of Youtube channel maneco64 looks at valuing gold in terms of US debt. He looks back to the previous two episodes where there was a currency “reset” in 1934 and 1980. Arriving at a gold backing to debt ratio for each of those two periods.

He uses the US national debt during these times. Then he takes the US gold reserves and the current gold price to give a total value of gold reserves. Then the gold reserves are divided into the total debt to give a gold backing to debt ratio.

The formula is therefore US Debt / (US Gold Reserves x Gold Price).

Gold Backing to US Debt Ratio “Reset” in 1934

What was the gold backing to US debt in 1934?

US Gold reserves in 1934 were 202.5 million ounces.

US Gold Reserves 1934

Via maneco64

Related:Australia has 80 Tonnes of Gold, How Much Gold Does New Zealand Have?

US national debt was at $27 Billion.

Via maneco64

The price of gold in 1934 had just been reset to $35 per ounce. So this came to $27 Billion worth of gold.

So in 1934 the value of the US gold was therefore 26% of the national debt.

Gold Backing to US Debt Ratio “Reset” in 1980

What was the percentage gold backing to US debt in 1980?

US National debt in 1980 was $877 billion.

US Debt in 1980 - debt clock

Via maneco64

While the price of gold spiked to $887.50 per ounce.

US gold price in 1980

Via maneco64

US gold reserves were pretty similar to today at 261.5 million ounces.

US gold reserves in 1980

Via maneco64

So in 1980 US gold holdings therefore amounted to 26.4% of US National debt. Remarkably similar to the percentage in 1934!  

What Price Would Gold Need to Be Today to Match the 26% Gold Backing to Debt Ratio in 1934 and 1980?

In 2018 when this video was created, US National debt was $27,143 billion (a.k.a. 21.1 trillion).

US Debt in 2018

Via maneco64

However today in 2020, US National debt is currently $24,947 billion (a.k.a. 24.9 trillion).

US Debt in 2020
Source.

US Gold reserves are still reported to be 261.15 million ounces.

US gold reserves 2018

Via maneco64

So to achieve a 26% gold backing of the US debt would require a book value of US gold reserves of just under $6.5 trillion.

Right now the book value is $445 billion using the current market gold price of $1706. So to reach a 26% gold backing, the price of gold would need to increase 14.61 times. So this comes to a gold price of  $24,925 per troy ounce.

[Note: this is a hefty increase from the $21,022 value that the author of the video arrived at back in 2018.]

Conclusion: To match the 1934 and 1980 “reset” prices and back US debt at 26%, gold would need to be priced at just under $25,000 per troy ounce!

The video creator rightly points out that there is no guarantee such a reset will happen. But that this does show how undervalued gold is today.

Interestingly this is a very similar number to that reached in this article which calculated the level the gold price would need to reach to 100% back the total assets of the Federal Reserve balance sheet: How Do You Value Gold | What Price Could Gold Reach? Updated 2020

Here is the full video…

A Reset Like in 1934 and 1980 Would Mean $21,000 Gold

You might also be interested in: When to Buy Gold or Silver: The Ultimate Guide

Editors note: This article was originally posted 26 April 2018. Last updated 11 May 2020 with new debt figures and resulting gold price projection.

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6 thoughts on “Gold Backing to Debt Ratio: A Reset Like in 1934 and 1980 Would Mean $25,000 Gold

  1. maurice says:

    I presume all this is in US dollars which looks like about NZ$ 28,000. Perhaps I should buy some more, even if our Reserve Bank are not interested.

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