Last Updated on November 20, 2024
The market capitilization of gold refers to the total value of all gold in circulation. At the time of writing the market cap of gold is approximately $18,098,179,964,395.2 or $18 trillion dollars.
This is calculated by taking the total amount of gold in the world in tonnes, then multiplying that by the number of ounces in a tonne, then multiplying that by the spot price of gold.
The calculation reads:
212,582 tonnes (total amount of gold) x 32,150.7 (number of ounces in a tonne) x $2648 (spot price of gold)
This calculation would change based on the changing spot price of gold. It would also change based on an increase in the total amount of above ground gold.
This figure is merely an estimate anyway, since there is no way to exactly quantify how much gold there is in the world. I have used the number provided by the World Gold Council.
Factors Influencing Gold’s Market Cap
Since gold’s market cap is the price of gold x the total amount of gold in the world there are only two things that move the needle.
- Price action
- Mining activity
There are quite a few things that influence the price action of gold, including:
- Investment demand
- Physical demand
- Central bank demand
- The relationship to the US Dollar
- Inflation
- Geopolitical shocks
- Confidence in the Federal Reserve
Supply and demand play a role, but so does gold’s role as money and its relationship to the US Dollar, to inflation and to interest rates. Gold is also a safe haven and its price normally rises in periods of financial and geopolitical uncertainty.
The other part of the equation is mining. Supply increases on average about 1.5% per year.
Even if the price doesn’t rise the market cap will ever so slightly as the total amount of gold in circulation is now higher.
Limitations of the Gold Market Cap as an Indicator
However, on its own the fiat market cap of gold is not all that useful. The increasing spot price of gold is largely a result of fiat monetary debasement, therefore changes in the market cap tell you very little.
What is more useful is comparing the market cap of gold against the market cap of other assets. This gives you an indication of the relative valuation of gold and whether it is over or undervalued.
For example, the market cap of the S&P 500 is $45.84 trillion.
The market cap of Bitcoin is $1.843 trillion.
Total global debt is $313 trillion.
Because what those figures will tell you, when you compare to historic norms, is whether or not gold is over or undervalued and by how much.
For example the market cap of gold is approximately 5% of the total global debt. In 1934 and 1980, when gold was significantly repriced, the dollar value of US gold reserves was about 26% of the total value of US debt.
If, and it’s a big if, we were to see something similar occur again it would require either a big fall in global debt or a massive increase in the price of gold. The latter is far more likely.
If you compare the market cap of Bitcoin to the market cap of gold and track it over time, you can then observe how quickly Bitcoin is taking over gold as the superior store of value.
Right now Bitcoin is about 8% of gold’s market cap. In 2014 it was 0.13%. It is only going to get bigger until one day it overtakes gold altogether.
In Gold We Trust has a great chart where you can see the historic market caps for both Bitcoin and Gold.
Why Buy Gold
The main argument for buying gold is that gold is money. In which case the market cap is irrelevant, since it is priced in US Dollars. If you buy an ounce of gold then you own an ounce of gold. What it is worth in fiat currency doesn’t really matter.
Gold is often purchased as insurance against the debasement of fiat currencies and protection against geopolitical instability. Personally, I prefer Bitcoin as insurance against debasement, but I also buy gold as a form of insurance against Bitcoin.
Gold allows you to remove wealth from the banking system and hold a form of money without counterparty risk that has a proven track record of preserving wealth over a long period of time.
Conclusion
The market cap of gold is approximately $15.8 trillion. You work this out by taking total tonnes, multiplying by 32,150.7 (number of ounces in a tonne) and then multiplying by the spot price of gold.
On its own the market cap tells you very little other than the fact fiat currency is debasing.
But it is particularly interesting to compare it to the total value of global debt and the market cap of Bitcoin.
