Fiat currencies declining in gold prices

Why we should ignore the gold price charts

 

New research from The Real Asset Company shows that when it comes to gold, everyone’s been looking at the wrong data. Rather than looking at the price of gold (which has climbed for the last 12 years); we should be looking at the value of the currencies we’re buying it in.

The Real Asset Company, an online physical gold investment service, sees the most interest in gold investment when the gold price is climbing. The majority of people investing see the price go up and rush to get in quick before it jumps up any higher; believing the price increase shows gold is worth an increasing amount of money.

But it’s not, the currency you’re buying in is just becoming more worthless – you need more of it to buy the same gold ounce which you would have bought for a few hundred dollars a few years ago.

In contrast, the value of the gold remains the same, whether you spend with it today or 500 years ago.

Rather than look at the usual graph of the gold price increasing, the graph we should all be looking at is the one below.


The graph shows a clear fall in the value of currencies when priced in one gold troy ounce. For the purpose of this research we have just taken the last 12 years as an example, however if you take it back to 1971 then the devaluation of our currencies is far worse.

To reiterate the British Pound, the US Dollar etc. are the moneys you earn and save in. If you have been saving for the last twelve years your money is now worth 80-90% less than it was in 2000.

Had you been paid, or saved, in gold you would still have the exact same amount you received in 2000. Not less, as you find with currencies.

Whilst to some it may seem scary that I’ve just told you gold’s price isn’t what you see, you should look at it another way – gold is the constant amongst all this.

More money moves to gold

The correlation between the gold price and the amount of currency in circulation is one which is often referred to as evidence of gold’s continued price escalation. We are all aware of central banks expanding their monetary bases, first covertly before the financial crisis and now quite openly as they are encouraged by governments to do so through quantitative easing.

As we all know from basic economics, the more there is of something the less it’s worth; its value decreases. And when government led currencies are priced in true money – gold – then it is clear how much value it is losing.

Why price it in gold?

Gold has been money for 6,000 years, its price has been rising ever since but its value remains the same. Throughout history we have used gold and silver as money, always returning to it after financial crises such as we see today.

As more countries prepare to repatriate their gold from foreign custodians and as increasing numbers of non-Western nations trade in gold, memories of the precious metal as money are being refreshed.

Increasing numbers of people and central banks are looking to hold their wealth in gold, not currencies.

We usually price gold in a number of currencies – most often the US dollar, but here at The Real Asset Co we sell gold in GBP and EUR as well.

All three are in financial difficulties; all three are using some kind of monetary policy measures to manipulate their way out of the crisis, and to erode the stability and strength of the currency.

Elsewhere the Chinese are accused of being currency manipulators, Japan are gawped at as they print to oblivion, Canada are admired because of their impressive economy and India complains about the high gold price.

But all of them, no matter their policies or global views of them, are seeing their currencies become hugely devalued against the international, faceless currency that is gold.

Will they recover?

Those of us interested in gold are big fans of referring to the fundamentals which drive gold. The main fundamental shown here is what we refer to as the ‘race to debase’ i.e. moves by central bankers to implement policies which devalue our currencies such as quantitative easing.

Unless you can find evidence that central banks plan to stop further expansion of the money supply then gold’s price will keep rising and the value of currencies will keep falling.

The ‘race-to-debase’ is clearly alive and well amongst the currency managers and central bankers of the world.

When you next hear about high or rising gold prices, just think what that means for your national currency and how to store your wealth in gold.

Want protection from the race to debase? Buy gold online in minutes…

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About the Author

Jan SkoylesJan Skoyles is Head of Research at The Real Asset Company, a platform for secure and efficient gold investment. Jan first became interested in precious metals and sound money when she met Ned Naylor-Leyland whilst working alongside him in the summer of 2010. Jan then went on to write her undergraduate dissertation on the use of precious metals in the monetary system. After graduating from Aston University in 2011 Jan joined The Real Asset Co research desk. Her work and views are now featured on a range of media including BBC, Reuters, Wall Street Journal, Mail on Sunday, Forbes and The Telegraph. She has appeared on news channels including Russia Today to discuss the gold price and gold investing. You can keep up with Jan's commentary by subscribing to our RSS feed Gold Investment News.View all posts by Jan Skoyles

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  • RUSS SMITH

    Hi!, Patrons Of The Real Assets Company Et Al:
    Dr Frantz Pick in his 1987 book, The Triumph Of Gold, shows on the front cover a picture of a tombstone having a $ sign with a caption reading: US $ “An Advanced Obituary.” Inside his book Dr. Pick, the World’s foremost currency expert before he passed, said that “ALL Government Bonds are certificates Of Guaranteed Confiscation.”
    He also tells US that corruption has been the biggest industry in the United States; his having studied corruption for 40 years. He said that corruption in the US is 5 times the size of the entire United States Automobile Industry but with one primary exception: “corruption pays zero taxes.” He said he owned gold and would NEVER sell his gold at any price in any currency. Where do we find a contemporary Dr. Pick today; except in personalities such as Jim Rogers and/or Dr. Mark Faber? We don’t have too many people today who resemble Dr. Pick & certainly not running for any political offices within any governments on the face of the Earth today. Don’t give up though. The next Dr. Frantz Pick might be you dear reader?
    RUSS SMITH, CALIFORNIA (One Of Our Broke Sates Going More Broke Daily)

  • CollyOlly

    In the ‘old days’ it was a disgrace to de-value a currency, so they found another phrase and now call it ‘quantitive easing’ ..! So pull the other one Mr. Bernanke, you know the US$ is in deep trouble, so why not just bite the bullet and re-value gold to say $8000/oz to cover your debts, and those of the rest of the world, and start from ‘Square-One’ again. You may not like taking a step backwards (in pride) to go forward again, but maybe 21st December 2012 will be ‘a good time for bad news’ as the Mayan calendar ends, and we can have a change of consciousness from the bad old negative ways, to go forward with positivity from a new base of hope for the future from 1st January 2013, when gold becomes a First-Class Asset and will find its own higher level as a currency in its own right.

    • Edward Ulysses Cate

      Do you really think that an old college professor from Princeton even has the power to do that??? I don’t think so. Ben does what he’s told to do.

  • Edward Ulysses Cate

    I’ve read in the book “Gold Wars” that some use the term “melting money” for fiat currency. Seems appropriate.

  • major

    No matter what era, what area od World…the people are perennially the victims of their so-called leaders. All the moves being made today by the central banks, to allegedly protect the economy, are in reality moves to protect the wealth of a handful of elites at the expense of the 90% of producers. It just proves once again that human nature cannot be trusted to be given power over the rest of us.

  • http://www.primevalues.org/ PrimeValues.org

    All currencies are massively losing value when compared to gold. But the masses are still unaware of this…
    Precious metals will become a lot more expensive when the masses start buying. Bank runs and massive sales of paper money will skyrocket the prices of precious metals, like gold. I think this will also be a strong factor contributing to higher gold prices.
    But right now in late 2012 I see a corrective pullback. Marc Faber, but even Goldman Sachs are predicting lower than previously thought gold highs. According to some it won’t reach 1,800 $ in 2013. Some even say it will crash below 1,500 $/oz.
    Ah well, we’ll see…

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  • http://www.primevalues.org/ PrimeValues.org

    It’s going way down, we’re already at 1,657 $! Jim Rogers, Marc Faber are talking about a strong correction and even Goldman Sachs has lowered the outlook for gold’s price in 2013… I wonder how low it will go?