Best of the Week
Most Popular
1. Gold Final Warning: Here Are the Stunning Implications of Plunging Gold Price - P_Radomski_CFA
2.Fed Balance Sheet QE4EVER - Stock Market Trend Forecast Analysis - Nadeem_Walayat
3.UK House Prices, Immigration, and Population Growth Mega Trend Forecast - Part1 - Nadeem_Walayat
4.Gold and Silver Precious Metals Pot Pourri - Rambus_Chartology
5.The Exponential Stocks Bull Market - Nadeem_Walayat
6.Yield Curve Inversion and the Stock Market 2019 - Nadeem_Walayat
7.America's 30 Blocks of Holes - James_Quinn
8.US Presidential Cycle and Stock Market Trend 2019 - Nadeem_Walayat
9.Dear Stocks Bull Market: Happy 10 Year Anniversary! - Troy_Bombardia
10.Britain's Demographic Time Bomb Has Gone Off! - Nadeem_Walayat
Last 7 days
Stock Market Due for 9-10% Pull Back? - 25th April 19
Dow Transportation Stocks Sector Is Testing Resistance - 25th April 19
INSOMNIA i64 UK Best Games Festival Vlog of What it's Like to Attend - 2019 - 25th April 19
In Just 45 Mins., Learn to Spot New Opportunities in ANY Market for FREE! - 25th April 19
If This Pattern Holds True, the US Economy Could Face the Worst Stagnation in History - 25th April 19
8 Reasons Why Investment in Education Always Pays Off - 25th April 19
Want To Earn A Safe 5% In Fixed Income? Buy Preferred Stocks - 24th April 19
Can Gold Price Rise Without a Rate Cut?  - 24th April 19
Silver’s Next Big Move - 24th April 19
How Can a College Student Invest Wisely? - 24th April 19
Prepare For Unknown Stock Market Price Action As New Highs Are Reached - 23rd April 19
Silver Plays a Small but Vital Role in Every Portfolio - 23rd April 19
Forecasting 2020s : Two Recessions, Higher Taxes, and Japan-Like Flat Markets - 23rd April 19
Gold and Silver Give Traders Another Buying Opportunity - 23rd April 19
Stock Market Pause Should Extend - 21st April 19
Why Gold Has Been the Second Best Asset Class for the Last 20 Years - 21st April 19
Could Taxing the Rich Solve Income Inequality? - 21st April 19
Stock Market Euphoria Stunts Gold - 20th April 19
Is Political Partisanship Killing America? - 20th April 19
Trump - They Were All Lying - 20th April 19
The Global Economy Looks Disturbingly Like Japan Before Its “Lost Decade” - 19th April 19
Growing Bird of Paradise Strelitzia Plants, Pruning and Flower Guide Over 4 Years - 19th April 19
S&P 500’s Downward Reversal or Just Profit-Taking Action? - 18th April 19
US Stock Markets Setting Up For Increased Volatility - 18th April 19
Intel Corporation (INTC) Bullish Structure Favors More Upside - 18th April 19
Low New Zealand Inflation Rate Increases Chance of a Rate Cut - 18th April 19

Market Oracle FREE Newsletter

Top 10 AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

“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