How much is gold really worth? The answer we get depends on who we ask and what their opinion is.

Everyone has an opinion on what something is worth, whether the object of consideration is their home, a deceased grandparent’s pocket watch, or a specific stock. In that sense, gold is no different.

The price of a specific item or asset at any given time is a reflection of all those divergent opinions. Some are based on fundamentals, others 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 stay the same), plus all other factors known at the time that could possibly affect the price, provide us with the clearest indication possible. the current value of the item in question: its market price.

If we believe that gold is money, it is likely that we have a different opinion or expectation than someone who sees gold as an investment; or someone who believes that gold has no useful value.

If we do not believe that gold is money, then we are saying that something else is. That other thing, practically speaking, is fiat, paper money 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 the money worth?” In the simplest terms, money is worth anything it can be exchanged for. The value of money is in its purchasing power.

With that rationale 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 has a realistic price?

With gold currently priced at $ 1,240.00 an ounce, the value of gold today is what we can buy for $ 1,240.

But is $ 1240.00 per ounce realistic today? Or rather, are there reasons why we could expect the price to rise or fall to a substantial degree that would influence our choice to hold money in gold vs. American dollars?

To answer that question, we need to do some research.

And, to spread any argument about whether gold is money or not (and set aside, as much as possible, any biases), let’s go back to a time when the US dollar and gold were money and had the same value.

In 1913, both gold and US dollars were legal tender and interchangeable. Either one was convertible into another at a fixed price. A one ounce (.97 ounce) gold coin was equal to twenty US dollars and vice versa. (Note: the official price of gold was $ 20.67 per ounce, which multiplied by 97 ounces of gold in a gold coin equals $ 20.00).

On the surface, it would appear that an ounce of gold over the past one hundred and four years has increased in ‘value’ by fifty-nine hundred percent ($ 20.67 in 1913 versus $ 1,240.00 today). By extension, that would mean that we can buy sixty times more with an ounce of gold today than in 1913. Not so.

We said earlier that the value of money is what we can buy with it, or can acquire in exchange for it, but what should be obvious by now is that although the ‘price’ of gold increased by fifty-nine hundred percent, we do not know if there was an increase in actual “value”, or possibly a decrease if gold was unable to maintain its original purchasing power.

However, we can still draw some conclusions about relative performance. The details are that gold gained in value by fifty-nine hundred percent “relative” to the US dollar. The corollary is that the US dollar fell by more than 98 percent “relative to” gold.

Now we need to know how gold and the US dollar fared in absolute purchasing power terms.

And the results are clear. Gold has maintained its value and even increased its purchasing power in absolute terms over the one century period considered. In addition, the results corroborate the current market price of gold of $ 1,240.00 an ounce.

What we don’t know is to what extent the current price of $ 1,240.00 per ounce accurately reflects the effects of the policies that have led to our current situation. More specifically, exactly how much value has the US dollar lost since 1913? Is it ninety-eight percent or less? ninety-nine, or more?

The current market price of gold of $ 1,240.00 an ounce indicates a fairly specific loss of 98 1/4 percent. A ninety-eight percent decrease in the value of the US dollar translates to a gold price of approximately $ 1000.00 per ounce. And if the decline is closer to ninety-nine percent, then the price of gold should be closer to $ 2,000.00 per ounce.

In August 2011, gold was trading at around $ 1,900.00 an ounce. That would indicate a decline in the value of the U.S. dollar of about ninety-nine percent since 1913.

But nearly four and a half years later, in January 2016, gold was trading at just $ 1,040.00 per ounce. That price indicates a decrease in the value of the US dollar by about ninety-eight percent. In fact, it is almost exactly equivalent to that brand. A ninety-eight percent decrease in the value of the U.S. dollar equals a fifty-fold increase in the price of gold since 1913 (100 percent minus 98 percent = 2 percent; 100 percent divided by 2 percent = 50; $ 20.67 per ounce multiplied by 50 = $ 1,033.50 per ounce).

Between 1999 and 2011, the price of gold increased from $ 275.00 per ounce to $ 1900.00 per ounce. And during that same period, the value of the US dollar decreased by a proportional amount.

Between August 2011 and January 2016, the US dollar was in a clearly defined uptrend. And that uptrend was reflected in a similar percentage decline in gold.

Since January 2016, both gold and the US dollar have changed direction for about six to nine months, then generally stabilized at levels close to current levels.

CONCLUSIONS:

Gold, in US dollars, has a value of between $ 1,000.00 and $ 2,000.00 per ounce. Also, and to be more specific, the current price of $ 1,240.00 per ounce is a reasonably accurate reflection of the current value of gold.

Any consequential variation that exceeds $ 1,100.00 per ounce downward and $ 1,300.00 per ounce upward WILL BE accompanied by similar inverse changes in the value of the US dollar.

The US dollar is the only barometer you should watch. The elements of surprise and opportunity are critical. More especially, if you are short-term oriented in your thinking.

Items to consider that could have a substantial impact on the US 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 and lagged effects of previously created inflation by the Fed 4) a credit implosion 5) the reaction of the Fed to a credit implosion.

Some of the items listed, or variations in them, can also positively affect the value of the US dollar. That is why you need to keep an eye on the dollar and not the specific event.

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