The excellent James Grant is a long-time gold bug. His lamentations about the incontinence of governments are constant and compelling, so it serves him right that he may now get the chance to do something about it. It’s only a slim chance, mind, since he and Lewis Lehrman have been asked by Newt Gingrich to study the feasibility of America returning to the gold standard.

The day after he did so, Gingrich won the South Carolina primary, and while the smart (paper) money is betting against a President Newt, it’s a start. Lehrman is not some dreamer yearning for a lost golden age; he’s written a book explaining how it could be done, and it does sound quite feasible. Here are a few stats to warm you up: Reuters reckons there were 166,600 metric tonnes of gold in captivity at the end of 2010, with  another 2,709 tonnes joining them that year, an increase of about 1.6%. That’s slightly below the long-run average of 1.7%. Of that total about half, 261.5 million ounces (it sounds more that way) are supposedly in Fort Knox. We don’t really know how much is really there, since the US Treasury won’t let the beancounters in to check. This opens up a whole philosophical debate on its own, but let’s assume it does exist.

This brings us to the little matter of  the conversion price, which is the bullion-dollar (sorry) question. The answer, according to Lehrman, is that price which encourages steady gold production, which is neither too low (so everyone stampedes out of paper money and the world’s dollar economy contracts) or so high as to precipitate a gold rush.

He suggests that Mr Market should be invited to pick the price for full convertibility at a date a year or three hence. His opening shot is between $2000 and $3000 an ounce. At $2500, the gold in Fort Knox is worth around $650 billion, which would cover 29% of the current account balances, and 25% of the monetary base of the US. That may or may not be enough, but it provides a clue. It also provides comfort to the gold bugs that today’s $1735 an ounce is still reassuringly inexpensive. Now all they need is a Newt in the White House.

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