Best of the Week
Most Popular
1. US Housing Market House Prices Bull Market Trend Current State - Nadeem_Walayat
2.Gold and Silver End of Week Technical, CoT and Fundamental Status - Gary_Tanashian
3.Stock Market Dow Trend Forecast - April Update - Nadeem_Walayat
4.When Will the Stock Market’s Rally Stop? - Troy_Bombardia
5.Russia and China Intend to Drain the West of Its Gold - MoneyMetals
6.BAIDU (BIDU) - Top 10 Artificial Intelligence Stocks Investing To Profit from AI Mega-trend - Nadeem_Walayat
7.Stop Feeding the Chinese Empire - ‘Belt and Road’ Trojan Horse - Richard_Mills
8.Stock Market US China Trade War Panic! Trend Forecast May 2019 Update - Nadeem_Walayat
9.US China Trade Impasse Threatens US Lithium, Rare Earth Imports - Richard_Mills
10.How to Invest in AI Stocks to Profit from the Machine Intelligence Mega-trend - Nadeem_Walayat
Last 7 days
Silver Short-Term Trend Analysis - 26th June 19
Iran and the Dying Days Of the US Empire - 26th June 19
Why a Saturated Online Gaming Market Spells Good News for Gamblers - 26th June 19
Natural Gas Sets Up Bottom Pattern - 26th June 19
Has Gold Price Broken Out Or Not? Technicals And Fundamentals - 26th June 19
Stocks and XAU Gold Miners Next Bull and Bear Markets are Now Set Up - 26th June 19
Gold Price Trend Forcast to End September 2019 - Video - 25th June 19
Today’s Pets.com and NINJA Loan Economy - 25th June 19
Testing the Fed’s Narrative with the Fed’s Data: QT Edition - 25th June 19
What "Pro Traders" use to Find Profitable Trades - eBook - 25th June 19
GDX Gold Stocks ETF - 25th June 19
What Does Facebook’s LIBRA New Crytocurrency Really Offer? - 25th June 19
Why Bond Investors MUST Be Paying Attention to Puerto Rico - 25th June 19
The Next Great Depression in the Making - 25th June 19
The Bad News About Record-Low Unemployment - 24th June 19
Stock Market New High, but…! - 24th June 19
Formula for when the Great Stock Market Rally Ends - 24th June 19
How To Time Market Tops and Bottoms - 24th June 19
5 basic tips to help mitigate the vulnerability inherent in email communications - 24th June 19
Will Google AI Kill Us? Man vs Machine Intelligence - 24th June 19
Why are Central Banks Buying Gold and Dumping Dollars? - 23rd June 19
Financial Sector Paints A Clear Picture For Stock Market Trading Profits - 23rd June 19
What You Should Look While Choosing Online Casino - 23rd June 19
INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - 22nd June 19
Here’s Why You Should Drive a Piece of Crap Car - 22nd June 19
How Do Stock Prices React to Fed Interest Rate Cuts? - 22nd June 19
Gold Bull Market Breaking Out! - 21st June 19
Post-FOMC Commentary: Delusions of Grandeur - 21st June 19
Gold Scores Gains as Draghi and Powel Grow Concerned - 21st June 19
Potential Upside Targets for Gold Stocks - 21st June 19
Gold Price Trend Forcast to End September 2019 - 21st June 19
The Gold (and Silver) Volcano Is Ready to Erupt - 21st June 19
Fed Leaves Rates Unchanged – Gold & Stocks Rally/Dollar Falls - 21st June 19
Silver Medium-Term Trend Analysis - 20th June 19
Gold Mining Stocks Waiting on This Chart - 20th June 19
A Key Gold Bull Market Signal - 20th June 19
Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - 20th June 19
Investing in APPLE (AAPL) to Profit From AI Machine Learning Stocks - 20th June 19
Small Cap Stocks May Lead A Market Rally - 20th June 19 -
Interest Rates Square Minus Zero - 20th June 19
Advice for Financing a Luxury Vehicle - 20th June 19
Stock Market Final Blow Off Top Just Hit… Next Week Comes the FIREWORKS - 20th June 19
US Dollar Rallies Off Support But Is This A Top Or Bottom? - 19th June 19
Most Income Investors Are Picking Up Nickels in Front of a Steamroller - 19th June 19
Is the Stock Market’s Volatility About to Spike? - 19th June 19
Facebook's Libra Crypto currency vs Bitcoin: Five Key Differences - 19th June 19
Fed May Trigger Wild Swing In Stock Index and Precious Metals - 19th June 19
How Long Do Land Rover Discovery Sport Brake Pads Last? - 19th June 19
Gold Golden 'Moment of Truth' Is Upon Us: $1,400-Plus or Not? - 18th June 19
Exceptional Times for Gold Warrant Special Attention - 18th June 19
The Stock Market Has Gone Nowhere and Volume is Low. What’s Next - 18th June 19
Silver Long-Term Trend Analysis - 18th June 19
IBM - Watson Deep Learning - AI Stocks Investing - Video - 18th June 19
Investors are Confident, Bullish and Buying Stocks, but… - 18th June 19
Gold and Silver Reversals – Impossible Not to Notice - 18th June 19

Market Oracle FREE Newsletter

Gold Price Trend Forecast Summer 2019

“A Loaf Of Bread, A Gallon Of Gas, An Ounce Of Gold” Revisited

Currencies / Inflation Oct 11, 2018 - 12:04 PM GMT

By: Kelsey_Williams

Currencies

One of the earliest articles I wrote was “A Loaf Of Bread, A Gallon Of Gas, An Ounce Of Gold”.  The information contained in the article is basic to a fundamental and accurate understanding of gold.

The convolution and complication of basic fundamentals reigns supreme in almost all analysis of gold.  That is unfortunate, because it obscures the simple truth.

The simple truth is that gold is real money. Even that simple truth, however, deserves some further explanation.


We know that there are certain attributes, or characteristics, of money.  The two that are  more commonly cited are 1) a medium of exchange and 2) a measure of value. But what is required of something in order for it to deserve the moniker of ‘real’ money?

In order for anything to be termed real money, it must be something else in addition to the above mentioned medium of exchange and measure of value.

That something else is a store of value: “A store of value is an asset that maintains its value without depreciating.”

The best and most relevant example to illustrate gold’s role as a store of value is as follows:

The Federal Reserve Bank of the United States was established in 1913.  At that time the U.S. dollar was fully convertible into gold at a rate of twenty ($20.67) dollars to the ounce.  You could exchange paper currency of twenty dollars for one ounce of gold in coin form. The coins were minted by the U.S. government.

Fast forward one hundred years.  The U.S. dollar has lost 98% of its purchasing power over the past century.  In other words, it takes more than fifty times as many dollars to buy today what one dollar would buy a hundred years ago. Whereas one ounce of gold will still buy today what it would a hundred years ago.

Only if something meets the requirements of all three specific things – medium of exchange, measure of value, store of value – can it be real money.  Anythingcan be real money if it meets these three requirements, however, throughout all of recorded history, only gold has passed the test.

The average cost for a loaf of bread in 1930 was close to ten cents ($.10). The average cost for a gallon of gasoline was also ten cents. (see below)

Average Cost Gallon Of Gas 1930 10 cents , 1940 11 cents , 1950 18 cents , 1960 25 cents , 1970 36 cents , 1980 $1.19 , 1990 $1.34 , 2009 $2.051

Average Cost Loaf of Bread Food 1930 9 cents , 1940 10 cents , 1950 12 cents , 1960 22 cents , 1970 25 cents , 1980 50 cents , 1990 70 cents , 2008 $2.79

With gold priced in U.S. dollars at twenty dollars per ounce, you could at that time purchase two hundred loaves of bread or two hundred gallons of gasoline (or some combination thereof).

Twenty U.S. dollars of paper currency OR one ounce of gold, usually in the form of a U.S. Double Eagle ($20.00 gold coin, legal tender), were equal in purchasing power.

Over the next four decades the cost for a loaf of bread/gallon of gasoline  continued to increase such that in 1970 the respective costs were twenty-five cents/thirty-six cents.  An ounce of gold at $40.00 would purchase  one hundred sixty loaves of bread/one hundred eleven gallons of gasoline.   That is considerably less than the two hundred units of either item which could have been purchased in 1930.  But the numbers are even worse when we look at what twenty dollars of U.S. paper currency would buy in 1970: eighty loaves of bread/fifty-five gallons of gasoline.  Both gold and the U.S. dollar lost purchasing power over the forty-year period 1930-70 but  the U.S. dollar was the “biggest loser”.

By 1980 the average cost of a loaf of bread was $.50 and the average cost of a gallon of gasoline had settled out at $1.19. One ounce of gold ($615.00 per ounce) would purchase twelve hundred thirty loaves of bread or five hundred sixteen gallons of gasoline.  Whereas, twenty  dollars in U.S. paper currency would buy only forty loaves of bread/seventeen gallons of gasoline.

Ten years later, in 1990, a loaf of bread had increased to $.70 and a gallon of gasoline to $1.34.  With gold at $338.00 per ounce you could purchase four hundred eighty-two loaves of bread/two hundred fifty-two gallons of gasoline. Twenty U.S. dollars would buy twenty-eight loaves of bread/fifteen gallons of gasoline.

The average cost of a loaf of bread and a gallon of gasoline today are approximately the same – about $2.90. An ounce of gold at $1200.00 can purchase four hundred thirteen loaves of bread or four hundred thirteen gallons of gasoline. This is more than double the amount you could have purchased with one ounce of gold in 1930.

And twenty dollars in U.S. currency will purchase only seven loaves of bread or seven gallons of gasoline which is more than ninety-six percent LESS than the amount you could have purchased with twenty dollars in U.S. currency in 1930.

The continual, ever-increasing prices of all goods and services is symptomatic of a currency with a terminal illness. The U.S. dollar (and all paper currencies) are substitutes for real money.  As such, they are doomed to eventual destruction.

The purpose in my original article “A Loaf Of Bread, A Gallon Of Gas, An Ounce Of Gold” was to illustrate the inherent and inevitable decline of money “substitutes”. In this case, more specifically, that means the U.S. dollar.

Those who continue to analyze changes in the price of gold need to change their focus and redirect their efforts.

The focus, by definition, is the U.S. dollar. Changes in the price of gold are a reflection of changes in the value (actual and perceived) of the U.S. dollar.

Those who continue to base expectations and decisions on the faulty analysis of gold that is prevalent today are hurting themselves needlessly.

Maybe its time to get a second opinion. (contact me here)

By Kelsey Williams

http://www.kelseywilliamsgold.com

Kelsey Williams is a retired financial professional living in Southern Utah.  His website, Kelsey’s Gold Facts, contains self-authored articles written for the purpose of educating others about Gold within an historical context.

© 2018 Copyright Kelsey Williams - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules