So how do we get the true, intrinsic, and fair value of gold and silver in the modern, scientific,
and technological era?
We must do so regarding the following in conjunction to the available stocks of
gold and silver:
1.Previous, current, and future valuable commodities.
2.Present and future currencies and size of economies.
3.Future scientific and technological breakthroughs and consumption of gold and silver.
4.Cost of mining and production and quantity produced.
1. Previous, current, and future valuable commodities.
Back in Roman times, pepper was said to be almost worth its weight in gold! This
resulted in all the gold (and some of the silver) of Rome being traded, over 4
centuries, with the eastern producers of the spice. Mind you, most of the silver of Rome
ended up in China in exchange for its valuable and most sought-after silk (But that's
another story.) Of course, this situation can't be repeated now because the current stock
of gold which is estimated to be 200 thousand tonnes can't be reconciled with the current
annual world production of pepper which is over 250 thousand tonnes per annum. In
fact, current pepper prices are approximately $3200 per tonne compared to a gold price (2016) of $1200 per ounce! That's a factor in gold's favour of 12,056 times.
Current commodities that could compete with pepper of ancient times are of course the
illegal drugs cocaine and heroin which are currently worth approximately their weight in
gold. However, this high price is only sustainable if the two of these remain illegal and
are currently facing rising competition from so called 'legal highs' as well as increased
production. It is in my opinion that these commodities will eventually face the same fate
as pepper as time goes by.
Future commodities manufactured by natural or artificial means that could be highly
valued are DMT (Dimethyl Tryptamine), Soma, the mythical potion used by the ancient
Hindus and of course the Elixir of Life itself. DMT is called the divine molecule and is
produced naturally in the Pineal gland of the brain and is supposed to give one an
experience of the afterlife and divine heaven. Same with Soma but with soma it is
claimed one is imbued with supernatural powers whilst under its influence. The Elixir
of Life (known as Amrut in ancient Hindu civilization) itself may be the most valuable
commodity of all time because it will enable one to achieve the ultimate quest of
Humanity: Immortality itself! These three future commodities could be the future
peppers of the world but would still be subject to over production and competition and
could thus lose their parity with gold on a weight-by-weight basis.
The above mentioned are commodities that are organic (carbon based). What about non-
organic based commodities? Well metals like Rhodium, Platinum, Palladium and Copper will always have some value in relation to Gold and silver and on account of their rarity and utility may even be more valuable than gold and silver but will probably not have a universally acceptable monetary value. Silver will of course have a
value based on a proportion to that of gold and may fluctuate widely based on both its investment and industrial demands. However, this essay is only concerned with
the value of gold and its relative value with respect to silver may be calculated proportionally.
The only other future non-organic based commodity that comes to mind is the much talked
about 'computronium'. This can be described as anything that delivers computer power
in Megahertz (million instructions per second) per unit cost in gold.
Take the 1970 IBM mainframe computer that delivered 12.5 Megahertz and cost 132,000
ounces of gold equivalence.. Cost per Megahertz = 10,560 ounces of gold.
Compare it with the modern 2014 Intel based PC which delivered 4 Gigahertz and cost
0.4 ounces of gold. Cost per Megahertz = 0.0001 ounces of gold.
In other words, in 44 years, the cost of 'computronium' decreased by a factor of 105.6
million in terms of gold! If the same rate persists for the next 44 years, which is highly
likely if present trends in computing continue, then an ounce of gold will be valued at an
unbelievable rate of 11.2 thousand trillion Megahertz of computing power!!! This is
how valuable gold can be against an industry that is at the vanguard of technological
progress!
2. Present and future currencies and size of economies.
Gold is currently priced in 'fiat' Dollars. What backs the Dollar? Nothing, you would say. Well not quite. The Dollar, or the Petro Dollar, is backed by oil! The
current (2014) rate of oil versus gold is approx.: 12 barrels of oil to 1 ounce of gold.
Have you ever considered the value of gold in terms of energy? Well 1 barrel of oil is
equivalent to 5,800 cubic feet of natural gas or 1.7 Mega Watt Hours. Or in terms of
Joules, 1 barrel of oil is equal to 6.1 Giga Joules (or 6.1 billion Joules).
Thus, one ounce of gold is currently valued at 69,600 cubic feet of natural gas, 20.4 Mega
Watt Hours or 73.2 Giga Joules.
So what are the current energy resources available on the planet?
According to Wikipedia, as of 2009, proven energy reserves in Zetta joules was as
follows:
Coal 19.8
Oil 8.1
Nat. Gas 8.1
Total 36.0
A Zetta Joule is IO²¹ Joules or 1000 billion billion Joules.
Now we are not including Nuclear energy but would like to mention the total annual
energy from the sun to the Earth is 3,650 Zetta Joules!
Also, the total geothermal energy potential of the earth is 10 million Yotta Joules, where
1 Yotta Joule is IO²⁴ Joules or 1 million billion billion Joules.
So just the proven energy resources (savings, as it were) is equivalent to 491.80 billion oz. of gold.
And the annual energy from the sun (income, as it were) is equivalent to:
49.86 trillion oz. of gold.
And the total geothermal energy of the earth is equivalent to
136,602,739 trillion oz. of gold.
But there is only approx. 170,000 tonnes of above ground gold in the world i.e. 5-466
billion ounces!
Thus, in purely energy savings terms gold is theoretically worth 548.8 Giga Joules of
energy or 89-97 barrels of oil per ounce.
But in terms of purely annual energy income, gold is theoretically worth 55,638.8 Giga Joules (or 55.6388 Tera Joules) of energy or 9,121.12 barrels of oil per ounce.
And in terms of geothermal energy gold is theoretically worth 152.435 million Tera Joules of energy or 24-99 billion barrels of oil per ounce!!!
Incredibly, the annual energy income from the sun is worth 101.38 times the puny
energy savings of fossil fuels accumulated over millennia on the planet and the world's
geothermal potential is worth 277.8 million times that figure!!!
Let's just ignore the vast geothermal energy of the earth and just concentrate on solar
energy.
Now to get a fairer and more realistic value of gold in terms of annual energy income
from the sun, one must multiply this sum by a factor of at least one hundred. This is because one
can't expect the world's gold stock to be valued against simply one year's energy income.
This gives a theoretical figure of 1 ounce of gold is worth 5563.88 Tera Joules (or
5-56388 Peta Joules) of energy or 912,112 barrels of oil!!
Now how big can the world economy be with gold worth 912,112 barrels of oil per ounce?
Well, it would obviously be on a gold standard with annual gold production (and thus income) being about 3,000 tonnes a year (about 97 million ounces). That is equivalent to 88.47 trillion barrels of oil a year or in 2014 Dollar terms 8.847 Quadrillion (8.847 thousand Trillion) dollars.
The current banking system is electronic, and the velocity of money can be at the speed of light if real time settlement is universally enacted in it! So, each gold money unit and subunit can flow potentially at the rate of millions of transactions a year through the
system. This can happen if every account has an automatic program to instantaneously
transfer debits and credits (for an exceedingly small and negligible fee) when they come due if an account's credit balance and future cash flow allowed for it. But let's just say for arguments sake it flows at the rate of 1,000 times a year, per gold unit, and therefore there is no need for fractional reserve lending (the banking system simply facilitates transfers of debits and credits, for an for the above mentioned fee). Thus only 97,000 ounces of gold would be required in the whole banking system to support a world economy of 8.847 quadrillion Dollars! The rest of the gold can go into government or personal savings. Notice this does not take inflation into account because it is all equivalent to gold energy conversion. As the value of gold increases, over time, as increased energy resources are utilized, less and less of it would be required in the banking system and its value increases in a
positive loop until its value becomes incalculable!! Of course, this scenario is feasible only if the technology to convert base metal to gold is technically and energetically not possible. If it is feasible, then the cut off point for the value of gold will be its nuclear syntheses value as shown below in 4.
But what if we consider the sun's total annual energy output and ways of Mankind tapping into it? One conceivable way envisaged is by building vast solar panels surrounding the sun and then beaming the energy to where it is utilised. The total energy involved is of an order of magnitude of 10 billion times the above figures for annual solar energy!
Based on this scenario, would-be future currencies like bitcoin would not stand a chance in the marketplace because who would be willing to be paid in an unbacked crypto currency when gold is available. Even a bitcoin-computronium combination would not stand a chance because of computronium's massive devaluation visa-vis gold
as shown in 1. above.
3. Future scientific and technological breakthroughs.
Science and technology advances by leaps and bounds annually, by breath taking
paradigms in decades and by unbelievable, unimaginable, and uncontrollable ways in
generations! No matter what the breakthroughs, availability of new goods and
services vastly increase in the marketplace and conversely prices rapidly come down.
This manifests truly in a gold standard economy where gold has found its true, intrinsic and fair value and where prosperity is universal. With the growth of automation and
robotics, increased longevity, and a society of leisure for all, education and
consumption will be the only driving forces in the economy. What happens to the value
of gold in this scenario? The value will increase exponentially with time against all
manufactured products and services as shown in the computronium example in 1. above.
Because only a tiny fraction of available gold would be required in the banking system
(and an ever-lessening amount over time), all new sources of gold will simply be saved
and accumulated as true wealth. Periodically, with increased energy resources coming
online, gold will be revalued upwards against energy. Thus, prosperity will be universal
and finally Utopia will be within Mankind's reach.
4. Cost of mining and production and the quantity produced.
Cost of mining gold will be miniscule compared to its true, intrinsic or fair value. It
may even be feasible to mine gold deep in the earth's mantle as well as extracting it from
seawater. It may be also feasible to mine the asteroid belt for the possible quadrillions of tonnes of gold.
No matter how large the quantity produced, if it is cheaper on an
energy returned on energy invested basis, (E.R.O.E.I.) the value in terms of energy per
ounce of gold will not differ substantially. Those massive quantities of gold produced may not affect the price, because if one is on a gold standard where wealth is defined as amount of gold held and accumulated then it is simply viewed as an increase in humanity's wealth! Because the amount required for banking and commercial
purposes will be tiny, all newly mined gold will go either into savings or investments,
with mining companies distributing dividend payments in gold!
Gold is produced in nature by nuclear reactions in a supernova explosion of a star which
releases energy equivalent to all the energy of an ordinary star like our sun throughout
its entire lifespan of 10 billion years. The daily energy output of the sun is 10³² Joules.
Thus, the energy output of the sun (and that of the supernova explosion) in 10 billion
years is 3.65x10⁴⁴ Joules. Suppose that produced, in theory, 170
quadrillion tonnes of gold (1 trillion times the current above ground stock of gold) we can
calculate the cost of natural production of gold in terms of energy as 6.68x10²² Joules
per ounce of gold or in barrels of oil equivalent to 1.09477x10¹³ or 10.9477 trillion
barrels. In other words, in 2014 Dollars 1 ounce of gold costs 1.09477 quadrillion (thousand
trillion) Dollars to produce in nature!! !! The exact cost in terms of energy can only be
calculated when future astrophysicists will determine the exact quantity of gold
production in supernovae explosions. Of course, the exact energy cost of producing one ounce of gold by nuclear synthesis can be calculated, but that is a job for the nuclear
physicists! This has been calculated by the American physicist, Dr Glenn Seaborg, as
costing (in 1951) approximately one quadrillion Dollars per ounce of gold produced!!
However, the energy equivalence of an ounce of gold can be calculated by the
famous formula
E =mc², where E is energy (Joules)
m is mass (0.0311 kg)
c is the speed of light (299-793 million metres per second).
This is equal to 2.795 x10¹⁵ Joules, equivalent to 458,197 barrels of oil, or 45.82 million
Dollars (2014). This is still a huge figure and can be taken as the fair value of gold if the
technology allows for it to be accomplished.
Obviously, the intrinsic value of gold and silver lies in its ultimate storage of value vis-a vis with
energy.
In short, it is obvious that gold and silver is currently vastly under-valued visa-vis both the Dollar
as well as oil. It is only a matter of time before the world wakes up to their true, intrinsic,
and fair value. When it does, the above-mentioned utopian scenario will happen.
