Gold - Value increase (From 19th century on) due to Inflation, or Higher Price?

Cgb · February 18, 2008 5:40AM

This thought has been rolling around in my head for the last few days. It is a bit of an awkward question to phrase, but I'll do my best.

Back when the US was producing gold coins, Double Eagles had roughly $20 of gold in them. Now, those double eagles have a melt value greater than $700. Is this increase in the price of gold because of inflation? Meaning $20 back then, had the spending of more than $700? To me that seems a bit far fetched.

The other reason I could think of now, is that we as a society place a higher value on gold, causing the price of gold to go up and up.

Which do you think is the greater contributer to the price of gold today, against what it was in the days of circulating gold coinage?

Steve27 · February 18, 2008 5:46AM

I believe that if you invested $20 in the stock market in 1933 you would have much more than $700 now, so I would go with inflation.

drwstr123 · February 18, 2008 5:47AM

In 1900 you could but a fine Colt Revolver for a Double eagle. Today you still can. Mike

RWB · February 18, 2008 5:49AM

Prior to the detachment of gold from monetary uses, its value was fixed by governments. That means we don't really know what it was "worth" in 1860 or 1900 or 1930, because the major world governments set an arbitrary value on it.

The only large free market experiment in the US occurred between March and October 1933 when the US temporarily went off the gold standard and allowed the price of gold (in dollars) to float. The market price went from $20.67 to about $29.00 in about a month, then slowly increased to around $30.00, at which point the US treasury began buying gold at 10-cents over the market price. This gradually forced up the dollar price of gold. The final pegging in January 1934 was $35.00/oz which brought huge amounts of the metal into the US for the next 15+ years.

2manycoins2fewfunds · February 18, 2008 6:11AM

I have my grandfathers ledger from 1916.
At that time a mans manual labor in N.C. was worth $0.16-0.20/hour.
So it would have taken him 100-125 hours to buy a double eagle.
Not too far off of what it would take today allowing $8-10/hour for manual labor.

AlanAllen · February 18, 2008 6:17AM

I've read that at most times in the last 500 years, an ounce of gold would buy 1 decent man's suit or 300 loaves of bread.

Joe

droopyd · February 18, 2008 6:24AM

<< <i>I've read that at most times in the last 500 years, an ounce of gold would buy 1 decent man's suit or 300 loaves of bread. >>

Today it would take about 1/3-1/2 of an ounce of gold to make the same purchase, assuming the men's suits you can buy for $3-400 are considered "decent" and the loaf of bread you can buy for a buck fifty or so is acceptable.

PerryHall · February 18, 2008 8:10AM

<< <i>I believe that if you invested $20 in the stock market in 1933 you would have much more than $700 now, so I would go with inflation. >>

What if you invested that $20 in the stock market just 4 years earlier.

jmski52 · February 18, 2008 8:15AM

assuming the men's suits you can buy for $3-400 are considered "decent"

My suits keep getting cheaper and cheaper, in every way.

RedTiger · February 18, 2008 8:26AM

<< <i>I believe that if you invested $20 in the stock market in 1933 you would have much more than $700 now, so I would go with inflation. >>

The big caveat is that this only applies to the U. S. stock market and maybe the United Kingdom. Other markets, such as Japan, Germany, France, (Russia when it had one pre-1917) and many others, odds are high that the stock investment would be worth zero because of lost wars and changes in government, revalued currency and other economic/political mega events.

As for the 1928 time period, yes, $20 invested in the U. S. stock market before the crash would still be worth more than $700 today, though obviously by not as wide a margin.

roadrunner · February 18, 2008 8:27AM

The 1913 dollar was worth about 20X what today's is. So yes, it's all inflation for the most part. There is also a small collectibility factor on
those mint BU $20's today (ie an MS63 saint is worth say 20% over melt).

roadrunner

gecko109 · February 18, 2008 8:30AM

http://www.westegg.com/inflation/

What would have cost you $20 in 1933, would cost you $301 today. Gold is outpacing inflation since 1933 it seems.

mrearlygold · February 18, 2008 8:34AM

In the 1920's a decent suit could be bought for $20.00. You could pay for it with a federal reserve note or a double eagle. Today that same double eagle would still buy that suit of clothes and even get some change back. What would that federal reserve note buy?

Mercury10c · February 18, 2008 10:53AM

Someone wrote a letter to editor in a recent Coin World, and stated that if you bought gold in the late 80s, when it was at or near it's high point,
that you are still losing money on it, and that the inflation adjusted price of gold would need to be about $2000 in order for you to just break even.
So, gold does not keep up with inflation. If you bought gold in the late 80s at $800 oz, and sold it today at $900, you have lost money. Of course,
if you kept that same amount of money in cash, you lost money too, due to inflation.

gecko109 · February 18, 2008 10:59AM

<< <i>Someone wrote a letter to editor in a recent Coin World, and stated that if you bought gold in the late 80s, when it was at or near it's high point,
that you are still losing money on it, and that the inflation adjusted price of gold would need to be about $2000 in order for you to just break even.
So, gold does not keep up with inflation. If you bought gold in the late 80s at $800 oz, and sold it today at $900, you have lost money. Of course,
if you kept that same amount of money in cash, you lost money too, due to inflation. >>

Is it really fair to take a 1 month slice out of a 28 year span? Your analysis proves just 1 thing. Statistics, when used out of context, can falsley justify almost anything.

roadrunner · February 18, 2008 12:44PM

Someone wrote a letter to editor in a recent Coin World, and stated that if you bought gold in the late 80s, when it was at or near it's high point, that you are still losing money on it, and that the inflation adjusted price of gold would need to be about $2000 in order for you to just break even........So, gold does not keep up with inflation.

If you knew more about the movements behind the gold market you'd know why gold did not keep up with inflation from 1980 to 2001. You would also know that gold has more than kept up with inflation over the past 6 years ($260 to $900/oz). And to quote the "peak" price of gold from 1980 when $800/oz was only exceeded on a few trading days for the entire year doesn't make a lot of sense. Gold's typical price was closer to $300-$500 in the 1980 period. To use the peak blow off price for analysis to inflation leads to errors. When gold heads to higher another couple of years, let's re-evaluate how well it kept up with inflation from 1980 to 2011 (?). My guess is that it will have kept up with or exceeded "real" (vice "published") inflation flates since 1980. Then all those articles about gold being a poor "investment" can be rewritten. They were saying the same thing about Buffet from 1997-2001 as he missed the speculative Nasdaq train(wreck).

roadrunner

ProofArtworkonCircs · February 18, 2008 1:37PM

Its funny, but from my perspective gold has beaten inflation in the short term and long term. It is in the interim when you might have trouble. The history of gold and inflation have bumps in them. Gold certainly was a bad investment and you are way behind if you bought it in 1980. Low points in the price index were 1896 and to a lesser extent 1913. I used to compare the purchasing value of a double eagle in 1896 in today's dollars versus its gold bullion value in today's dollars.

Just a few years ago the numbers were about equal. Today the purchasing power of 20 1896 dollars is slightly over $600 whereas the gold value of a double eagle is approaching $900. Of couse a stock purchase or even a bank account might beat both handily.

In 1960 our local coin club gave away a $5 gold piece every month on a raffle where tickets were $1 each. I don't think any club could come close to being able to afford that today.

So my answer to the original question (19th century on) is 2/3 inflation and 1/3 higher price (at this moment in time.)

ProofArtworkonCircs · February 19, 2008 12:43AM

So far today gold is up $20 plus an ounce. That is a price increase although it would not surprise me if inflation tried to catch up.
On another front the price of spot regular gasoline on the futures market is up 31 cents in just a short period now ( a couple of weeks or so and 10 cents today so far) and looks like it will go up another 16 cents by April. Maybe inflation is here, after all.

dac076 · February 19, 2008 2:31AM

We can pick different start times to prove that gold outperformed or underperformed inflation, but I've read that the long term return of gold (~100 years) is about 3-4%, which would equal inflation. It's not fair to compare it to the stock market, which historically has a higher return do to higher risk.

Gold - Value increase (From 19th century on) due to Inflation, or Higher Price?

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