Wednesday, August 10, 2016

Gold has never been cheaper in relation to the dollar in the history of the U.S.

When you measure gold versus any currency the thing you must always do is compare it to purchasing power rather than the 'price'.  For example, the price of gold in relation to the Euro and Yen is currently right near their all-time highs but the price in relation to the dollar is still 35% below that level.

Additionally, and since we live in an era where all currencies are fiat and backed by nothing, one must expand upon this 'purchasing power' balance scale and look at the price in relation to different periods of the currency.  This is because over time the currency will intrinsically become devalued, and you can find a relationship between the price from say 70-100 years ago, and the price relation today.

On Aug. 9 Bill Holter discovered a chart that compared the price of gold in dollars through a historic outlay that goes back to 1913 when the Federal Reserve was founded, and when a central bank began controlling the nation's money.  And what you see in that chart is astounding as the devaluation of the dollar, and increase to the money supply has become so great, that gold in dollars are now cheaper than at anytime in America's history.

Let’s start by deconstructing this down to what it really means. First, I must confess I do not know whether this chart is comparing the “priced” amount of U.S. gold to the monetary base or rather the price of gold to the monetary base (because the axis is not labeled). Either way, this chart tells us something VERY important! 
The price of gold relative to the monetary base has never been lower than it is right now other than the at the end of last year. 
Looking at the chart, you can clearly see the “markup” of gold in 1933 from $20.67 to $35. You can also see the run from $35 to $850 during the 1970’s and peaking in 1980. 
You can also see the turn in 2000-2001 when gold traded down to $256 per ounce. These were very important generational turns but we can glean something even more important from this chart. In relation to the monetary base, you can now purchase gold below $20.67, below $35 and below $256 when adjusted for the monetary base outstanding! The monetary base has grown and grown for 100 years, it has exploded in the last 8 years. - Silver Doctors


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