Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
US Housing Market Real Terms BUY / SELL Indicator - 16th July 19
Could Trump Really Win the 2020 US Presidential Election? - 16th July 19
Gold Stocks Forming Bullish Consolidation - 16th July 19
Will Fed Easing Turn Out Like 1995 or 2007? - 16th July 19
Red Rock Entertainment Investments: Around the world in a day with Supreme Jets - 16th July 19
Silver Has Already Gone from Weak to Strong Hands - 15th July 19
Top Equity Mutual Funds That Offer Best Returns - 15th July 19
Gold’s Breakout And The US Dollar - 15th July 19
Financial Markets, Iran, U.S. Global Hegemony - 15th July 19
U.S Bond Yields Point to a 40% Rise in SPX - 15th July 19
Corporate Earnings may Surprise the Stock Market – Watch Out! - 15th July 19
Stock Market Interest Rate Cut Prevails - 15th July 19
Dow Stock Market Trend Forecast Current State July 2019 Video - 15th July 19
Why Summer is the Best Time to be in the Entertainment Industry - 15th July 19
Mid-August Is A Critical Turning Point For US Stocks - 14th July 19
Fed’s Recessionary Indicators and Gold - 14th July 19
The Problem with Keynesian Economics - 14th July 19
Stocks Market Investors Worried About the Fed? Don't Be -- Here's Why - 13th July 19
Could Gold Launch Into A Parabolic Upside Rally? - 13th July 19
Stock Market SPX and Dow in BREAKOUT but this is the worrying part - 13th July 19
Key Stage 2 SATS Tests Results Grades and Scores GDS, EXS, WTS Explained - 13th July 19
INTEL Stock Investing in Qubits and AI Neural Network Processors - Video - 12th July 19
Gold Price Selloff Risk High - 12th July 19
State of the US Economy as Laffer Gets Laughable - 12th July 19
Dow Stock Market Trend Forecast Current State - 12th July 19
Stock Market Major Index Top In 3 to 5 Weeks? - 11th July 19
Platinum Price vs Gold Price - 11th July 19
What This Centi-Billionaire Fashion Magnate Can Teach You About Investing - 11th July 19
Stock Market Fundamentals are Weakening: 3000 on SPX Means Nothing - 11th July 19
This Tobacco Stock Is a Big Winner from E-Cigarette Bans - 11th July 19
Investing in Life Extending Pharma Stocks - 11th July 19
How to Pay for It All: An Option the Presidential Candidates Missed - 11th July 19
Mining Stocks Flash Powerful Signal for Gold and Silver Markets - 11th July 19
5 Surefire Ways to Get More Viewers for Your Video Series - 11th July 19
Gold Price Gann Angle Update - 10th July 19
Crude Oil Prices and the 2019 Hurricane Season - 10th July 19
Can Gold Recover from Friday’s Strong Payrolls Hit? - 10th July 19
Netflix’s Worst Nightmare Has Come True - 10th July 19
LIMITLESS - Improving Cognitive Function and Fighting Brain Ageing Right Now! - 10th July 19
US Dollar Strength Will Drive Markets Higher - 10th July 19
Government-Pumped Student Loan Bubble Sets Up Next Financial Crisis - 10th July 19
Stock Market SPX 3000 Dream is Pushed Away: Pullback of 5-10% is Coming - 10th July 19
July 2019 GBPUSD Market Update and Outlook - 10th July 19

Market Oracle FREE Newsletter

Top 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