For each company, the price that corresponds to the fair value of the company can be calculated relatively easily using fundamental key figures such as the price-earnings ratio (P/E ratio) or the price-book ratio (P/B ratio). Even if the actual daily price on the stock exchange deviates from this price again and again – sometimes very significantly – there is no doubt among investors about the calculation of the corresponding key figures themselves.
It becomes more difficult to determine the true value of an investment if, like gold or silver, no fundamental key figure can be determined at all. As a way out, relative key figures are often calculated, such as the gold-silver ratio. This makes it at least more visible whether one investment form is to be regarded as rather expensive or inexpensive relative to another. Although these relative key figures offer the investor a certain amount of orientation, they do not provide an absolute standard.
The Emerging Markets Bond Team of the investment company VanEck recently leaned a little further out of the window at this point and investigated how high the price of a troy ounce of gold would have to be if the money issued had to be covered by the yellow metal, as it once was in the days of the gold standard. Although the analysts emphasize that they do not expect the gold standard to be reintroduced, the results of their study nevertheless give plenty of food for thought, because in this case the ECB would have a huge problem and it would only be a weak consolation that the problem of the US Federal Reserve, the Bank of England and the Bank of Japan would be even greater.
The more developed the economies, the more vulnerable their currencies are
Until August 1971, all currencies were linked to the US dollar, which in turn was linked to gold. When he detached the US dollar from gold, then US President Richard Nixon declared that this step was only “temporary.” A return to the gold standard would therefore – at least theoretically – be possible at any time. But what if it were actually implemented again tomorrow? The VanEck team investigated this question and the results are quite shocking.
An absurd question? Not at all. “In modern financial history, this has usually not been a hypothetical question,” the VanEck analysts note. “Under the classical gold standard, paper money was merely a claim check for physical gold in a vault. This link was completely severed in 1971, turning the world into a ‘fiat’ system in which money is only backed by government decree.”
This raises the question of how high the gold price would be if the global money supply had to be covered by it. The answer is to divide the money issued by the gold reserves of a country or currency area. However, it is likely to be controversial which money supply is used, because depending on which size is chosen, a different picture emerges.
VanEck focuses on the money supply M0 and M2 in its considerations
The VanEck team has therefore decided to use the money supply M0 and M2 as benchmarks for all countries. The money supply M0 represents the monetary base. It consists of cash, i.e. coins and banknotes, and bank reserves. They are the first to be demanded back by people in a classic bank run. The money supply M2 is the money supply in the broader sense, because in addition to the money supply M0, it also includes savings deposits and money market funds. In the modern financial crises such as 2008 or 2020, it represented the broader liquidity that the system was trying to protect.
If you divide the monetary liabilities M0 and M2 by the existing gold reserves, there are dramatic differences between the individual countries and currency blocs. In the USA, for example, the gold price would have to rise to 39,210 US dollars per ounce if the 8,100 tons of state gold stored in Fort Knox were to fully cover the money supply M0 issued. If gold is even to fully cover the expanded money supply M2, the gold price would have to rise to 184,211 US dollars.
The situation would be even more dramatic in Japan and Great Britain. Here, the ratio of existing gold reserves to money issued is particularly unfavorable. In Japan, for example, a troy ounce of gold would have to cost 301,000 US dollars if the entire money supply M2 were to be covered by it. In Great Britain, this value even rises to 428,000 US dollars, while in the Eurozone it is “only” 53,000 US dollars.
Russia and Kazakhstan would be fine
If a gold standard had to be introduced internationally again tomorrow, countries such as Russia and Kazakhstan, on the other hand, would not have the slightest problem with this, because they have so much gold that they can cover the money supplies M0 and M2 issued at much lower valuations. They could convert their currencies to a new gold standard at the current gold price.
The situation is also still advantageous for South Africa, Turkey, Poland, Saudi Arabia and Thailand. Their gold holdings no longer fully cover the money supplies issued, but they still largely do. This underlines the fact that many emerging and developing countries have pursued a much more cautious monetary policy in recent decades than the western industrialized countries, including China.
For the VanEck analysts, these calculations are by no means just an academic exercise, but they will really be of importance in 2026, because the world has definitely entered an era of fiscal dominance. “Developed markets are struggling with high levels of government debt, forcing central banks to ‘print’ more money to keep the system liquid,” the VanEck analysts write. “As the mountain of paper money grows indefinitely, the value of the finite asset gold must theoretically rise to keep pace.”
