Putting into perspective what could you buy in the past with an ounce of gold, compared to what can be bought today, it is possible to measure how the purchasing power of the golden metal has increased over time.
A Little Bit of History
Let's go back to 1930, when an ounce of gold was priced at $20 dollars. At that time, in the United States the price of a loaf of bread was, on average, 10 cents, the same price as a gallon of gasoline. So, in exchange for one ounce of gold, 200 loaves of bread or 200 gallons of gasoline could be purchased. Over the next four decades, both the price of a loaf of bread and the price of a gallon of gasoline continued to rise to the point that, In 1970 their prices were 25 and 36 cents, respectively.
Dollar vs Gold Which One Loses its Purchasing Power and Which One Protects Us from Inflation?
In 1970, one ounce of gold had a price of $40 dollars, allowing to buy 160 loaves of bread and 111 gallons of gasoline. That is, a lower amount than what could be bought in 1930. But the figures are less flattering when we look at what could be purchased with $20 dollars in US paper money in 1970: Only 80 loaves of bread or 55 gallons of gasoline. Both gold and the US dollar lost purchasing power over the forty-year period between 1930 and 1970, but during that period, the US dollar was the"biggest loser".
Decline of the Dollar against Gold
After President Franklin Roosevelt issued an executive order prohibiting private ownership of gold by American citizens in 1933, an ounce of gold was revalued at $35 and US paper money would no longer be convertible into gold for citizens, while foreign holders (mainly governments) could continue to exchange their US dollar holdings for gold at the “new and official” exchange rate of $35 dollars per ounce.
In other words, foreign holders of US dollars were informed by the United States that their reserve of “money” (in the form of US currency) was worth 41% less than before. This was a tacit admission by the United States government that it had been aggressively “inflating” the money supply, as evidenced by the cumulative effects of that inflation, expressed in the increase in prices of goods and services.
The Great Depression in the 1930’s, and the Second World War in the 1940’s, “conveniently” received much of the blame. And after a notable economic progress in the following decades, in 1971 things entered into uncharted territories.
The Dollar Begins to Lose its Shine
Foreign governments wanted their gold, but the United States was not willing to release it or didn't have it; probably some combination of both. Thus, in August 1971, President Richard Nixon suspended any further convertibility of US dollars into gold for non-US citizens.
Prices of goods and services in the United States began to rise rapidly and the price of gold in US dollars reached a high in the 1980’s of $850 dollars per ounce. The average price of gold in that decade was $615 dollars per ounce.
One slips, the Other One Stands Firm
In 1980, the average cost of a loaf of bread was 50 cents, twice its price in 1970. And the average price of a gallon of gasoline was set at $1.19 dollars, several years after the Arab oil embargo of the early seventies.
Continuing with the parallelism of inflation with the purchasing power of the dollar and that of gold, the conclusion is evident. In 2016, the average cost of a loaf of bread and a gallon of gasoline was approximately $2.50 dollars. With an ounce of gold at $1,300 dollars, it was possible to buy 520 loaves of bread or 520 gallons of gasoline, which is almost 160% more than the amount that could have been purchased with one ounce of gold in 1930; meanwhile a $20-dollar bill in 2016 could buy 8 loaves of bread or 8 gallons of gasoline, which represents 96% less than what could be purchased with that same dollar in 1930.
In November 2023, an ounce of gold is trading around $2,000 dollars, which means an increase of over 54% in its price in just seven years. Today the average price of a loaf of bread is $2.00 dollars and the average price of a gallon of gasoline is $3.23 dollars. With an ounce of gold today it is possible to buy 1,000 loaves (4 times more than the 200 bars you could buy in 1930) and 617 gallons of gasoline (2 times more than the 200 gallons you could buy in 1930), which represents a solid growth, proving that the golden metal not only maintains, but also increases its purchasing power, especially during long periods of time.
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