John Butler: What Would It Take To Re-Establish a Global Gold Standard?



In the decades before the First World War, international trade was conducted based on what has come to be known as the classical gold standard. However, the United States stopped using the gold standard because of its volatility in 1933, finally abandoning the remnants of the system in 1973.

John Butler, head of treasury at TallyMoney and author of The Golden Revolution, Revisited, spoke with Kitco News anchor David Lin about the current state of gold, the U.S. dollar and inflation, and his thoughts on the gold standard.

Right now, Butler said, gold is experiencing a “hawkish moment” as the Federal Reserve raises interest rates to fight inflation. However, he added, “this is just as much a U.S. dollar story as it is a gold story.”

“It’s as if the dollar is the outlier, not gold,” he said. 

When asked why he thinks gold is still such a trusted source, Butler explained that the very nature of gold as a limited, mineable commodity makes it the ideal standard for a self-regulating monetary system. 

“The fact is that nobody can print gold, nobody can create gold,” he told Lin. “You only can come up with more gold either by exporting more than you import, and then, of course, you accumulate gold, or of course, you find a way to dig more out of the ground, but that’s expensive, takes time and money, and you only do it when the price of gold is sufficiently high to make that economically worthwhile.”

“And so,” he added, “the supply of gold becomes kind of a self-regulating system vis-a-vis the demand for gold. And that to me is a much, much better basis for international trade and growth than the system we currently have.”

Considering that in the past a gold standard meant that gold prices were relatively flat, Lin asked, why would an investor choose to invest in gold if a gold standard was enacted today? 

To make it work, you would need a transition period to a gold standard, says Butler. “The transition period will have to reprice gold to a level which allows it to be valued vis-a-vis the global asset base and global trade volumes in a way that implies equilibrium. […] Today, the gold price is too low to allow markets to clear because assets are overvalued vis-a-vis gold, and you need to rebalance the global economy such that you don’t have these imbalances.” 

But what would it take to reach that equilibrium? “According to my calculations,” said Butler, “you’re talking something in the region of about $50,000 per ounce being a reasonable market clearing price for gold if you fully go back to a gold-backed international monetary system.”

The current gold spot price (US$1,740.60 as of September 12, 2022) is down 53.80% year-over-year, but has recovered slightly (+17.00%) over the past five days.