Gold is real money. It always has been and always will be. The bitcoin / crypto currency faction may believe otherwise, but while speculation may (definitely) drive up the price of bitcoin and other cryptos, the stability of gold is exactly what makes it real money. This post will be short and is directed at the value of real money versus other assets, historically.
Average Home Price
In September 1966, the price of gold was $35 an ounce. At the same time, the price of an average home in the United States was $23,300 (median = $21,400). So for about 665 ounces of gold, you could own a home in 1966. Fast forward to 2016, with gold trading at $1,350 an ounce and the average home sells for $358,000. Do the math and you’ll see that homes are actually cheaper today than they were 50 years ago because it only takes 265 ounces of gold to buy now.
On this day in 1966, the S&P traded just above $80 a share, or for 2.25 ounces of gold. Today, the S&P 500 closed at an all time high of 2,187! Yet, priced in gold, that’s still just 1.62 ounces of gold. And, while the margin is much less than on home prices, it’s still a large enough difference to question your investment in the stock market all these years.
As with many things financial, its all about timing/pricing. For example, 20 years ago, when the average home price was $159,000, gold was trading at $387 an ounce. That’s still 410 ounces vs today’s 265.
What about the S&P? It was traded at 665, still more expensive at 1.73 ounces of gold. Rewind to 1980, when gold topped at $675, the S&P was at 125 (0.20oz) and the average home was 76,000 (110oz), that was the time to sell gold and buy other interest producing assets, if you were using real money.
What’s the future look like? Who knows! We do believe that business leaders need to keep an eye on the price of gold to other assets and even use it as a hedge for a long term store of value.