A Fair Price For Gold – $1000 Or $2000?

Gold (or any other money) is worth what we can buy with it (GLD).

Bullion, Gold, Bar, Gold Bar, Currency

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So, what can we buy with it?  And how do we know that the value of our gold/money is realistically priced?

We know that gold is currently priced at more than $1800 per ounce; so the value of gold today is what we can buy with one thousand eight hundred dollars.

But is $1800 dollars per ounce realistic?  Does it represent fair value?  Are there reasons why we might expect that price to rise or decline to any substantial degree that would influence our choice to hold money in gold vs. US dollars?

Let’s go back to a time when both gold and the US dollar (UDN) circulated as money, were freely convertible, and were equal in value.

A century ago, both gold and US dollars were legal tender, and interchangeable. Either was convertible into the other at a fixed price.  A one ounce (.97 ounces) gold coin was equal to twenty US Dollars and vice-versa (the official gold price was $20.67 per ounce, which multiplied by .97 ounce of gold in a gold coin equals $20.00).

With the current price of gold at $1800, some would be tempted to say that the value of gold over the past one hundred years has increased by eighty-six hundred percent. But that would mean that one ounce of gold today will buy eighty seven times as much as it would a hundred years ago. We know that is not the case.

The specifics are two-fold: 1) Gold gained in price by eight-six hundred percent relative to the US dollar. 2) The US dollar declined by more than ninety-eight percent relative to gold.

Gold and US Dollar Purchasing Power

Now we need to know how both gold and the U.S. dollar fared in absolute terms regarding purchasing power. You can read about that in my article A Loaf Of Bread, A Gallon Of Gas, An Ounce Of Gold.

The results are clear.  Gold has maintained its value, and even increased its purchasing power in absolute terms, over the century-long period under consideration.

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Linda Willis 4 weeks ago Member's comment

I vote for $10,000