Purchasing Power of Gold

June 1, 2023

RISING PRICES FOR BREAD AND GAS

Food and energy prices receive headline attention because of their impact on consumer budgets. Post-Covid there has been a sharp spike upwards in the cost of groceries that seemed to catch most people off guard. In addition, the cost of gasoline at the pump has remained at a relatively high level for several years now.

A college professor I know, in a discussion with his class about the effects of inflation, said that his family grocery bill had doubled since the pandemic. That is a hefty increase.

With the effects of today’s higher prices causing their fair share of problems and angst, it might be good to see how prices for bread and gas compare historically; and how they compare to the price of gold. 

PRICES FOR BREAD, GAS, AND GOLD 

About one hundred years ago, the price for one loaf of bread was $.10 (ten cents). The price for a gallon of gasoline was also $.10.  

Today, the average price for a loaf of white bread is $2.50. That  equates to a 25-fold increase in the price of bread from a century ago. 

The math for a gallon of gasoline yields the same (25-fold increase) result if we use pre-Covid prices. With the current national average for a gallon of gasoline at approximately $3.50, the increase is 35-fold ($3.50/$.10). 

The price of gold one hundred years ago was fixed at $20.67 oz. The amount of gold in a Gold Double Eagle coin was .9675 oz. When you multiply the gold price of $20.67 times the gold content of .9675, the result is exactly $20. 

At the time, an ounce of gold at $20 was convertible (redeemable, exchangeable) into $20 paper currency and vice versa. 

What this means is that you could purchase 200 loaves of bread or 200 gallons of gasoline with either one ounce of gold (priced at $20) or, with $20 in paper currency. 

$USD LOSS OF PURCHASING POWER

The U.S. dollar today is worth one penny compared to the dollar of a century ago. Another way to say this is that the U.S. dollar has lost ninety-nine percent of its purchasing power over the past one hundred years; or, it costs 100 times more today to buy an equivalent amount of goods and services than it cost a century ago. 

With the average cost of a loaf of bread at $2.50 now, compared to $.10 a hundred years ago, $20 in paper currency will buy only 8 loaves of bread instead of the 200 loaves that we could originally purchase. 

The loss of purchasing power represented by the example above amounts to ninety-six percent; meaning that we can buy ninety-six percent less bread than before with the same $20. That compares very closely to the ninety-nine percent loss in U.S. dollar purchasing power stated earlier. 

For gasoline, the loss is greater. Our $20 in paper currency today will buy less than six ($20/$3.50 = 5.71) gallons. That amounts to a ninety-seven percent loss in purchasing power. 

BREAD AND GAS PRICED IN GOLD

Now it’s time to see how the purchasing power of gold (one ounce) compares to the U.S. dollar ($20). 

For our purposes, we will use a current/recent gold price of $2000 oz. which is representative of the ninety-nine percent loss of U.S. dollar purchasing power that has occurred thus far. 

One ounce of gold, priced at $2000 oz., will buy 800 loaves of bread at $2.50. That is four times the original amount of 200 loaves. 

As for gasoline, one ounce of gold will now buy 571 gallons compared to the original 200 gallons. 

GO FOR THE GOLD

FACTS:

  1. The effects of inflation (higher prices for goods and services) have erased ninety-nine percent of U.S. dollar purchasing power. 
  2. One ounce of gold today at $2000 has one hundred times more purchasing power than the U.S. dollar.
  3. Gold is real money and a store of value.
  4. Gold is a store of value because it maintains its purchasing power. 

Over time, the effects of inflation, i.e., higher prices for goods and services, are reflected in a higher price for gold. Holding gold compensates you for the erosion of purchasing power in the U.S. dollar. Get gold.

By Kelsey Williams for Neptune Global

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Neptune Global is a full service precious metals dealer serving individual investors, the wealth management industry, broker dealers and institutional investors. The firm’s platform of investment bullion includes all forms of traditional physical precious metals in conjunction with innovative physical precious metal investment assets which provide unparalleled diversification, transparency and liquidity. Their leadership in the market is documented with such official designations as being the recipient of a US Patent for the PMC Ounce (Precious Metals Composite). While dynamic offerings such as the PMC Ounce provide investors with many of the conveniences and benefits generally associated with mutual funds and ETFs, all of Neptune Global’s product offerings remain true to the firm’s core convictions related to the time tested value ascribed to physical precious metals ownership.


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