The Impressive Long Term Purchasing Power of Gold & Silver

We saw a great meme on WallStreetSilver which sparked our essay idea for this week, the meme- The True Value of Gold and Silver compared how many ounces of silver it would take to purchase a corvette in 1950 compared to today – the answer was less!

This meme is a great example of the true value of silver over time. Below we reproduce the meme, but with the modification of the starting year of 1971 – which as we discussed in previous weeks is the year that then-President Nixon closed the Gold Exchange Window (see the post on August 19 “The Changing Role of Gold”).

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This is the year that the gold price was taken off the US$35 per ounce fix. As the meme below shows, the cost of a new Corvette in 1971 was $5,496. And that cost has increased to over US$67,000 in 2020 – an increase of 1235%.

However, if we ‘price’ the Corvette in terms of ounces of gold, the Corvette in 1971 would cost 135 ounces of gold compared to the cost of a Corvette in 2020 being only 38 ounces of gold!

The True Value of Gold and Silver

And when ‘priced’ in terms of ounces of silver, the Corvette in 1971 would have cost 3,572 ounces compared to only 3,308 ounces of silver needed to purchase a Corvette in 2020.   

Digging deeper – below we chart the cost of a Corvette for all the years from 1971 to 2020, in the same three measures as above. In US dollar terms, ounces of gold, and ounces of silver.  

What we can see is that the cost of a Corvette in US dollar terms has risen somewhat steady over the last 50 years.

The Long Term Purchasing Power of Gold and Silver

However, since gold and silver price markets do not move in a straight line. The cost of a Corvette in terms of ounces of gold and ounces of silver has changed significantly, the cost of a Corvette was as low as 21 ounces of gold and 631 ounces of silver in 1980. And the cost of Corvette was as high as 149 ounces of gold and 9259 ounces of silver in 2001.

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So, although yes, it is true that the number of ounces of gold, and of silver, it takes to purchase a Corvette has gone through cycles over the last 50 years. The point we would like to close with is that, although this purchasing power of gold and silver is disrupted in the short and even medium-term – the long-term (50 years) purchasing power of gold and silver being able to purchase goods and services has remained impressively constant.

So this just shows evidence for how long the elastic relationship between paper money and precious metals can stretch…not for 50 years, but yes it can for 10 years and even 20 years.

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From The Trading Desk

Stock Update:

Silver Britannia’s offer for the UK! We still have a limited number of Silver Britannia Monster boxes and Silver Britannia Tubes of 25.

Supplies are very limited. We are offering these at the lowest premium in the market (which includes VAT at 20%). Please contact our sales team to avail of this offer. 

Gold Britannia’s 1oz Coins start at 6.5% over spot. 

Krugerrands are currently the lowest premium on 1oz coins at Spot plus 5.5%.

Excellent stock and availability on all gold coins and bars with 1oz bars at a very competitive 3.75% over Spot. 

Silver 100oz and 1000oz bars are also available VAT-free in Zurich.

Please see below our extended trading hours. 
** We have extended our opening hours. Phone lines, online ordering and WebChat are now open until 09:00-22:00 (Europe/Dublin) USA 09:00 to 17:00 EST**

Market Update:

Gold started the week off with a strong move up from $1780 to $1800 on the back of July’s FOMC meeting indicating a more hawkish tone than perceived before the release of the minutes.

Gold got up to just shy of its 200 day moving average at $1813 but failed to take it out. We are back below $1800 this morning with near term support at $1750. 

All eyes now move to the Fed meeting in Jackson Hole as we wait to see if there will be any more information on tapering of bond purchases in September. 

However, we believe that we will possibly have to wait until the September meeting before they announce any timeline as they will have more information on the August job numbers and the effect on the Delta variant by then. 

Trying to time this market to add to your allocation is extremely difficult and at these current levels, these are excellent levels to cost average in at.

We are seeing consistent volume coming through with an 80% on the buy side.

There has been an excellent uptake also on our Silver Britannia offer for UK clients.
 

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GOLD PRICES (USD, GBP & EUR – AM/ PM LBMA Fix)

25-08-2021 1794.70 1788.70 1307.80 1303.60 1527.29 1521.83
24-08-2021 1802.95 1808.45 1314.71 1318.00 1536.29 1538.63
23-08-2021 1786.90 1802.00 1308.19 1315.82 1524.23 1536.57
20-08-2021 1782.95 1779.05 1309.58 1305.47 1527.10 1523.58
19-08-2021 1788.20 1782.05 1307.89 1301.79 1530.16 1523.30
18-08-2021 1788.10 1783.45 1300.13 1295.32 1525.61 1522.00
17-08-2021 1794.05 1789.45 1299.61 1300.57 1524.22 1524.61
16-08-2021 1775.75 1786.35 1281.91 1291.53 1507.61 1517.15
13-08-2021 1757.65 1773.85 1273.59 1281.07 1496.64 1506.35
12-08-2021 1755.50 1747.40 1266.24 1262.85 1494.81 1489.66

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