How much does gold actually cost? The answer we get depends on who we ask and what their opinion is.
Everyone has an opinion as to what something is worth, whether the object of consideration is their house, the pocket watch of the deceased grandfather or a specific stock. In this respect, gold is no different.
The price of a particular item or asset at any given time is a reflection of all those different considerations. Some of them are based on the basics, others – on technical factors. But the combination of all the considerations and the resulting expectations (some expect the price to rise, others expect it to go down or stay the same) as well as all the other known factors at the time that may affect the price, provide us with as accurate as possible an indication of the present value of the product in question: its market price.
If we believe that gold is money, then most likely we will have a different opinion or expectation than one who considers gold an investment; or someone else who finds gold useful.
If we do not believe that gold is money, then we say that there is something else. Something else, practically speaking, is a purple paper currency issued by the government or the central bank (dollars, euros, yen, etc.).
With that in mind, let’s rephrase our original question. In other words, “How much is the money?” Simply put, money is worth everything you can exchange it for. The value of money is in purchasing power.
Given this basic it is clear the logic is quite simple. Gold (or any other money) is worth what we can buy for it.
So what can we buy with it? And how do we know that the value of our gold / money is actually estimated?
If gold is now worth $ 1240.00 an ounce, the price of gold today is what we can buy for twelve hundred and forty dollars.
But is it really $ 1240.00 an ounce today? Specifically, are there reasons why we might expect the price to rise or fall to any significant extent that will affect our choice to keep money in gold against the U.S. dollar?
To answer this question, we need to do some research.
And in order to spread any argument about whether gold is money (and to postpone – as far as possible – any biases), let’s go back to a time when the US dollar and gold were both money and equal in price.
In 1913, both gold and US dollars were legal tender and interchangeable. Both were convertible to others at a fixed price. One ounce (.97 ounces) of gold coin was equal to twenty US dollars and vice versa. (note: the official price of gold was $ 20.67 per ounce, which is multiplied by 97 ounces of gold in a gold coin equal to $ 20.00).
At first glance, it would seem that one ounce of gold over the past one hundred and four years has increased in “price” by fifty-nine hundred percent ($ 20.67 in 1913 versus $ 1240.00 today). That being said, it means that today we can buy sixty times more than one ounce of gold than we could in 1913.
We have said before that the value of money is what we can buy from it or buy in return, but what should now become clear is that, despite the fact that the “price” of gold has risen by fifty-nine hundred percent, we do not know, increased the actual “price” or perhaps decreased if gold failed to maintain its original purchasing power.
However, we can still draw some conclusions relative performance. The specificity is that gold has increased in price by fifty-nine hundred percent against the US dollar. The result is that the U.S. dollar has fallen more than ninety-eight percent “relative” to gold.
Now we need to know both gold and the US dollar in absolute terms of purchasing power.
And the results are obvious. During the century under review, gold retained its value and even increased purchasing power in absolute terms. In addition, the results confirm the current market price for gold of $ 1240.00 per ounce.
We don’t know to what extent the current price of $ 1,240.00 per ounce accurately reflects the implications of the policies that have led to our current situation. More specifically, exactly how much has the US dollar lost since 1913? That’s ninety-eight percent, or less; ninety-nine or more?
The current market price for gold at $ 1240.00 per ounce indicates a fairly specific loss of ninety-eight and 1/4 percent. A reduction in the value of the US dollar by ninety-eight percent means the price of gold is about $ 1,000 an ounce. And if the decline is closer to ninety-nine percent, then the price of gold should be closer to $ 2,000 an ounce.
In August 2011, gold traded at about $ 1,900.00 an ounce. This would indicate a decline in the value of the U.S. dollar to nearly ninety-nine percent since 1913.
But almost four and a half years later, in January 2016, gold was trading at $ 1,040.00 an ounce. This price indicates a decrease in the value of the US dollar to almost ninety-eight percent. In fact it is almost exactly equivalent to this estimate. The decrease in the value of the dollar by ninety-eight percent corresponds to a fifty-fold increase in the value of gold since 1913 (100 percent minus 98 percent = 2 percent; 100 percent divided by 2 percent = 50; $ 20.67 per ounce, times $ 50 – $ 1033.50 per ounce). ).
Between 1999 and 2011, gold rose from $ 275.00 per ounce to $ 1,900.00 per ounce. And in the same period, the US dollar fell by a corresponding amount.
In the period from August 2011 to January 2016, the US dollar was in a clear upward trend. And this uptrend was reflected in a similar decline in gold.
Since January 2016, both the gold and the U.S. dollar have changed direction for about six to nine months and then stabilized, usually at a level close to where they are now.
Gold in US dollars costs somewhere between $ 1,000 and $ 2,000 an ounce. Also, to be more specific, the current price of $ 1240.00 per ounce is a fairly accurate reflection of the current value of gold.
Any subsequent variance in excess of $ 1,100.00 per ounce down, and $ 1,300.00 per ounce up, will be accompanied by similar reverse changes in the value of the US dollar.
The US dollar is the only barometer to monitor. Elements of surprise and timing are critical. Especially if you focus on the short term in your thinking.
Points that could have a significant impact on the US dollar include 1) new and unexpected actions of the Federal Reserve System 2) a clearer picture of the Fed’s volume balance 3) accelerated, delayed effects of inflation previously created by the Fed 4) credit implantation 5) The Fed’s response to credit implosion.
Some of these items or their variations may also have a positive effect on the value of the US dollar. That is why you need to follow the dollar, not a specific event.