Email of the day (2)
Comment of the Day

April 29 2013

Commentary by Eoin Treacy

Email of the day (2)

on gold's purchasing power
“Thank you for another very well done friday audio. The fact that you mentioned "purchasing power inflation" reminded me that many years ago, you reffered to somebody who values a particular gold coin's value to a dinner of two at Ritz London. I do not know if you remember this. But i am very curious to know wheather or not gold is now expensive in that context. If this question sounds too wild, please just ignore it. Very best rgds .”

Eoin Treacy's view Thank you for your kind words. David made this comment in the hard copy version of Fullermoney more than a decade ago but we both remember him making reference to it on occasion over the last few years.

Following its recent decline, a gold sovereign sells for approximately £230. The Ritz's six course set menus including wine range from £145 to £175 per person. I'm afraid we do not have an historical record for the price of dinner at the Ritz but assuming a gold sovereign once bought a dinner for two, gold has lost at least part of its purchasing power since the 1970s by that measure. However, it is reasonably safe to assume it gold has held its value better than most other assets.

Rory Gillen kindly forwarded an article he wrote for the Irish Times last week, which included this graphic plotting nominal gold prices against inflation-adjusted prices since 1930. Here is a section:

The enclosed chart highlights two gold prices. The first (solid) line highlights the actual gold price from $35 dollars an ounce in 1935 to the current price of $1,410 an ounce. The second (broken) line highlights what the gold price would have been, and would now be, had the gold price simply risen in price to match recorded inflation. The chart has been suggesting for some time that the gold price is ahead of itself.

Most people who view inflation as a threat feel that while governments tell us loudly and repeatedly that there is no inflation, we still see food, energy, insurance, educational and medical costs continue to rise Those who argue the deflationary case testify that wage contraction, higher taxes, excess capacity and deteriorating velocity of money ensure that inflation is not an issue. The result of course is that we are presented with a form stagflation which weighs particularly heavily on the middle classes.

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