State of the world 50 years ago

[dixiesilvergirl]

[HerefordBullyun]

Well we all know what happened when Mr Nixon decided to take the gold standard away thereafter.......

[Lr103]

This shows that both gold and silver did their jobs to preserve wealth over and above inflation over the past 50 years.  According to the BLS (the organization which creates and measures the CPI which is the inflation index in the US), $1 in March of 1971 had the same purchasing power as $6.62.

So if they only kept pace which inflation today, 1oz of gold bought in 1971 would be worth $273.15 and 1oz of silver would be worth $10.20 today.

It's also interesting to see the price of gas at $0.40 inflates to the same price we pay today.

Here's the calculator link:

https://www.bls.gov/data/inflation_calculator.htm

 

[jultorsk]

Sure can't buy an ounce of silver with 1 hours of work on minimum wage anymore. 🧐

 

[Spark268]

12 hours ago, Lr103 said:

So if they only kept pace which inflation today, 1oz of gold bought in 1971 would be worth $273.15 and 1oz of silver would be worth $10.20 today.

 

the gold price was fixed at 35-42 an ounce until 1971, however, at that time it wasn't actually possible to buy gold at that level, unless you were a central bank.

The market was strained prior to the closing of the window so it would be interesting to know what the retail price of gold/silver was at that time, and use that as a base.

The price of houses and cars looks like they have inflated at x10 since 1971.

The price of food is x 6

Wages x4

S&P 500 x  40 (excluding re-invested dividends, which gives x 173 if included)

M1 Money Supply x 83

A crude average of these is x28.6.  Using the official gold rate of 42, that yields: $1176 . Using only the S&P 500 ratio, gives $1680 at a minimum, but as high as $7200 if you included dividends. 

You need to add 25% to the base rate of Gold in 1971, to take into account actual demand at the time.  Otherwise, there would be no need to close the window!

And being careful to use the right inflation level. You generally don't eat gold like bread, live in it, drive it or take it to the hospital - so you need to use the right level of inflation, besides CPI., i.e. asset price inflation There has also been an increased industrial demand for gold given the pace of technological developments.

All things considered, the implied price could be as large as >$5000 an ounce, or as low as $273 as you say, but I'd say that is more of an extreme under-estimate, than my $5,000 over-estimate.

 

 

 

 

 

[Lr103]

46 minutes ago, Spark268 said:

 .All things considered, the implied price could be as large as >$5000 an ounce, or as low as $273 as you say, but I'd say that is more of an extreme under-estimate, than my $5,000 over-estimate.

Just to clarify, the only thing I was suggesting was the gold seemed to accomplish its role of protecting purchasing power. The are many deficiencies in using CPI to measure inflation. I’m not sure if it was read this way, but I was certainly not saying the price of gold should be $273!

46 minutes ago, Spark268 said:

S&P 500 x  40 (excluding re-invested dividends, which gives x 173 if included)

This is another important example, as it illustrates the difference between productive assets such as profitable businesses and non-productive assets like commodities over time.  

[Spark268]

please accept my apologies, it wasn't aimed directly at you - I had initially arrived at a similar number to you using the figures given above.

I just wanted to say, its not clear how to measure purchasing power exactly, and whether that alone should be used to derive the implied nominal gold price now.

Using a 'wealth' based approach - the total wealth, or debt in the world is approaching $300trillion, there's only $9tri worth of gold out there, meaning on this basis it should be valued at 53,000 an ounce.  

It's not a precise science, but if you were to plot the various estimates, there might be a few below the current price, the majority will cluster above it.

 

PS. the price of bread is also 'suppressed' - most retailers use it as a loss leader, farmers get huge subsidies, and the quality has deteriorated significantly, which is why there's so much gluten intolerance, but thats OT😕

 

[Lr103]

No worries...I just needed to be sure I wasn’t on record valuing gold at $273! 🙂