Wednesday, 15 September 2010

Update to Jim Sinclair type gold estimate vs US debt - 2010-09-15

This follows on from my two posts in 2008 (that long ago?!) estimating the fair price of gold needed to balance external US debt liabilities. At that time the gold price needed was about $8300 per ounce.

$8387.96 Gold & US Balance sheet #2! 2008-07-18

Estimate gold market @ $8355+! 2008-07-18

Now it has changed. The US debt has increased a lot since then!

These $8300 figures were taken from estimates of US debt held by foreign entities and dividing that by the US gold reserves.

This time I have used the following two sources of data:

The  text file on the St. Louis Fed website, giving foreign holdings of US debt. It's called:

'Federal Debt Held by Foreign & International Investors'
which now totals $3,884,000,000,000 (3.884 trillion, up a long way from the figure I used for 2007/08 which was $2.190 trillion

and the evergreen Wikipedia:
which gives 8133.5 tonnes for the USA (unchanged since 2008)
The gold price to cover this debt is:
3,884,000,000,000/8,133.5/32150=$14853.22 per ounce of gold.
Incidentally, 32150 is the number of Troy ounces in 1 tonne.

The actual gold price for 15 September 2010 is $1267.70 after a high near $1275 yesterday, so it's currently 8.53% of fair external debt budget balancing value, i.e. 91.47% undervalued.

Gold is more undervalued on this metric than it was in July 2008, when it was over 10% (11.3%) of fair value, i.e. 88.7% undervalued, despite its rise from $948.80 to $1267.70 in the last two years.

That's 'only' a 33.6% rise in $ gold price over 26 months. Not exactly a bubble is it?

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