How much is gold really worth? The answer we get depends on who we ask and what their opinion is.
has an opinion as to what something is worth, whether the object of
consideration is their home, a late grandfather’s pocket watch, or a
specific stock. In that respect, gold is no different.
of a specific item or asset at any given time is a reflection of all
those varying opinions. Some are based on fundamentals, some are based
on technical factors. But the combination of all the opinions, and the
resulting expectations (some expect the price to go up, others expect it
to go down or remain the same), plus all of the other known factors at
the time that might possibly impact the price, provide us with the
clearest possible indication of current value for the item in question:
its market price.
If we believe that gold is money, then we likely
will have a different opinion or expectation than someone who sees gold
as an investment; or someone else who deems gold to have no useful
If we don’t believe that gold is money, then we are saying
that something else is. That something else, practically speaking, is
fiat, paper currency issued by a government or central bank (dollars,
euros, yen, etc.).
With that in mind let’s rephrase our original
question. In other words, “How much is money worth?” In the simplest of
terms, money is worth whatever it can be exchanged for. The value of
money is in its purchasing power.
With that fundamental
understood, then the logic is reasonably simple. Gold (or any other
money) is worth what we can buy with it.
So, what can we buy with it? And how do we know that the value of our gold/money is realistically priced?
With gold currently priced at $1240.00 per ounce, the value of gold today is what we can buy with twelve hundred forty dollars.
is $1240.00 per ounce today realistic? Or rather, 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. U.S. dollars?
In order to answer that question, we need to do some research.
in order to diffuse any arguments about whether or not gold is money
(and to set aside – as much as possible – any biases) let’s go back to a
time when the U.S. dollar and gold were both money and equal in value.
1913, both gold and U.S. 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 U.S. Dollars and
vice-versa. (note: the official gold price was $20.67 per ounce, which
multiplied by.97 ounce of gold in a gold coin equals $20.00).
the surface, it would seem that one ounce of gold over the past one
hundred and four years has increased in ‘value’ by fifty-nine hundred
percent ($20.67 in 1913 vs $1240.00 today). By extension, that would
mean that we can buy sixty times as much with one ounce of gold today as
we could in 1913. Not so.
We said earlier that the value of money
is what we can buy with it, or we can acquire in exchange for it, but
what should be obvious by now is that even though the ‘price’ of gold
increased by fifty-nine hundred percent, we don’t know whether there was
an increase in actual ‘value’, or possibly a decrease if gold was
unable to maintain its original purchasing power.
We can still, however, draw some conclusions about relative
performance. The specifics are that gold gained in value by fifty-nine
hundred percent ‘relative’ to the U.S. dollar. The corollary is that the
U.S. dollar declined by more than ninety-eight percent ‘relative’ to
Now we need to know how both gold and the U.S. dollar fared in absolute terms regarding purchasing power.
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. Also, the results corroborate the current
market price for gold of $1240.00 per ounce.
What we don’t know is
the extent to which the current price of $1240.00 per ounce reflects
accurately the effects of policies which have led to our current
situation. More specifically, exactly how much value has the U.S. dollar
lost since 1913? Is it ninety-eight percent, or less; ninety-nine, or
The current market price for gold of $1240.00 per ounce
indicates a fairly specific loss of ninety-eight and 1/4 percent. A
ninety-eight percent decline in the value of the U.S. dollar translates
to a gold price of approximately $1000.00 per ounce. And if the decline
is closer to ninety-nine percent, then the gold price should be closer
to $2,000.00 per ounce.
In August 2011, gold traded at about
$1900.00 per ounce. That would indicate a decline in value of the U.S.
dollar of closer to ninety-nine percent since 1913.
four and one-half years later, in January 2016, gold traded as low as
$1040.00 per ounce. That price indicates a decline in U.S. dollar value
closer to ninety-eight percent. In fact, it is nearly exactly equivalent
to that mark. A ninety-eight percent decline in U.S. dollar value
equates to a fifty fold increase in the gold price 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).
and 2011, gold increased in price from $275.00 per ounce to $1900.00
per ounce. And during that same period, the U.S. dollar declined in
value by a commensurate amount.
Between August 2011 and January
2016, the U.S. dollar was in a clearly defined uptrend. And that uptrend
was mirrored by a similar percentage decline in gold.
January 2016, both gold and the U.S. dollar reversed direction for about
six to nine months and then stabilized, generally, at levels close to
where they are now.
U.S. dollars, is worth somewhere between $1000.00 and $2000.00 per
ounce. Furthermore, and to be more specific, the current price of
$1240.00 per ounce is a reasonably accurate reflection of gold’s current
Any consequential variance exceeding $1100.00 per ounce on
the downside and $1300.00 per ounce on the upside WILL BE accompanied
by similar, inverse changes in the value of the U.S. dollar.
U.S. dollar is the only barometer you need to watch. The elements of
surprise and timing are critical. Most especially so, if you are
short-term oriented in your thinking.
Items for consideration that
could have a substantial impact on the U.S. dollar include 1) new and
unexpected actions by the Federal Reserve 2) a clearer picture of the
enormity of the Fed’s balance sheet 3) accelerated, delayed effects of
inflation previously created by the Fed 4) a credit implosion 5) the
Fed’s reaction to a credit implosion.
Some of the listed items, or
variations of them, can affect the value of the U.S. dollar positively,
too. Which is why you need to keep your eye on the dollar, and not the