Gold standard return could push metal to $10,000 an ounce

Return to gold standard would send metal soaring to $10,000

No one knows what price gold would settle at if it once again underpinned the monetary system, and that uncertainty is exactly what drives the market. The last time metal and money were officially linked was in 1971, when Nixon ended Bretton Woods: an ounce cost $35, the same price as in 1933. Today it trades near $1,650. In between lie four decades of fiat money and US public debt hovering around 200% of GDP.

The hypothesis has moved beyond the fringe. US Republicans are considering restoring the dollar-gold link if they win the presidential election; the Swiss parliament has already debated it; central banks are accumulating metal. And with the European monetary system creaking, the question arises naturally: would it be good for Spain?

How much would an ounce be worth with a restored gold standard?

A study by Capital Economics calculates it would go near $10,000/ounce, five times the current price. No one signs off on that figure as certainty: it depends on the fixed rate. If the Federal Reserve used the average of the last decade —around $800— as a reference, gold could even sink relative to current levels. And those expecting to get rich after the change will be disappointed: between 1933 and 1971 the price didn't move a single dollar.

That's the detail almost no one looks at. Once established, a gold standard isn't an investment: it's a rule. While speculation about its return persists, the metal rises and investors crowd ahead of anticipated massive central bank purchases. When the rule applies, the game changes.

There isn't enough gold on the planet to back the euro

It's the most repeated argument and the hardest to dodge: the amount of mined metal doesn't reach to guarantee the volume of money in circulation. There wouldn't be enough gold for the euro, let alone the dollar, and forcing conversion would require brutal deflation or a revaluation that would leave half the economy out of the system.

Against this arises the technical thesis: the gold standard doesn't miccionan every banknote is backed by metal. In a system with a central bank, it means adding another constraint to its algorithm, just as today the Fed works with two mandates —containing prices and promoting employment—. Using gold as money is a different, older regime.

The error of confusing money with wealth

Here the debate becomes philosophical and full of traps. It is argued that gold equals wealth; the answer is that real wealth is labor, and currency only greases the machine that puts it into circulation. With little grease, parts seize up; with too much, the engine overheats and also breaks. The only true standard, according to this reading, would be labor.

Defenders reply that this is absurd because in a functional economy labor doesn't have constant value. The gold standard, they say, is to economics what the metric system is to physics: the fishmonger can raise the price of fish, but cannot change what a kilo weighs. They add that the "velocity of money," handled as a magnitude, doesn't exist: it's a textbook artifact.

What would happen to Spain and its stock market?

The scenario isn't free. The harshest thesis holds that a hard money regime would force many businesses that only know how to grow with credit to disappear or shrink: less paper, fewer derivatives endorsed as collateral, less smoke. The businesses that would survive would be self-sustaining ones, those that generate real wealth and don't depend on the central banker of the day.

Applied to an economy like Spain's, the adjustment would be severe. With restricted credit and no room to devalue, the correction of imbalances —deindustrialization, structural unemployment— would happen through prices and wages. The same bill paid now, but without the safety net of monetary policy.

Alternatives: bitcoin, national currencies, and personal 'standards'

Not everyone believes the future lies in metal. One school argues the substitute already exists and is called bitcoin: advantages similar to the gold standard with fewer drawbacks, particularly that it's harder for politicians to manipulate. Another proposes returning to national fiat currencies: a strong one for the productive economy and an inflationary one for the rest.

And in the 19th century Europe operated with a fairly fruitful gold standard that practically functioned as a single currency. If the euro falls, backing new currencies with metal returns to the table: Italy has some of the world's largest reserves, and a new lira with backing would be attractive to investors.

There remains the domestic version. Anyone can apply a personal gold standard: just convert savings into grams. The exercise illustrates the inflation trap —someone earning €1,000 in April 2021 received 20.9 grams of gold; a year later, 17.5—. An 18% cut in income without anyone touching the payroll.

Returning to the gold standard is, today, impossible de facto and likely just rhetoric even if announced. What seems certain is that the simple debate —electoral in the US, academic in Switzerland, desperate in the eurozone— will continue inflating the metal while it lasts. If a rate is ever fixed, remember what peine between 1933 and 1971: forty years of frozen price. Gold won't feed those who arrive late.