An important point of reference

After the European Central Bank pumped another $50 billion or so into their banking system yesterday, the grand total of "liquidity injections" over the last two weeks by the Federal Reserve, ECB, Bank of Japan, and various other central banks around the world now stands at somewhere around $500 billion.

Half a trillion dollars.

Is that a lot?

How would anyone know?

What do you compare it to?

The Gross Domestic Product for the U.S. is over $11 trillion (most of which is consumer spending) and the U.S. government's annual budget is about $2.5 trillion, but any comparison to the greatest spenders the world has ever seen is inherently unfair.

Maybe it would be an interesting exercise to add up the value of all the gold reserves held by all the world's central banks to see how that figure would compare.

In the hypothetical (albeit very impractical) situation where central banks had to sell gold to pay for all these "liquidity injections", how much would depart the bank's vaults and how much would remain?


(This is not a photo of a central bank vault but, rather, gold held in trust for owners of the streetTRACKS Gold Shares ETF (AMEX:GLD). The world's most popular gold fund continues to set new records for inventory adding another 7 tonnes just three days ago.)

Here's the calculation based on the June data from the World Gold Council and yesterday's closing price of $659 per ounce:

• A total of 30,279 tonnes of gold are held by central banks, the IMF, and the BIS
  
  
• One metric ton equals 2,205 pounds x 14.583 ounces/pound or 32,155 ounces
  
  
• 30,279 tonnes x 32,155 ounces/tonne x $659 per ounce = $642 billion

The approximately $500 billion dollars of "injected liquidity" over the last two weeks is disturbingly close to the value of all the gold held by all the central banks in the world.

That's an important point of reference.

Full Disclosure: No position in GLD at time of writing, however, the author owns a hefty supply of shiny, one-ounce gold coins.