The easy conclusion from that example is that prices have increased. However, one could more accurately state the value of the dollar has diminished. Had one been able to preserve those burgers, fries and shakes for over 60 years they would have retained the original purchasing power of their dollar bill (currently $10+ at McDonalds). Although storing food and most every product/commodity is fraught with risks and complication, one takes the additional chance that there may not be demand for such goods in the future. Had one bought $1 worth of gold in the 1950s, they would have $33 worth today.
Therein lies the value of gold. While theft of gold is a risk like anything else, gold doesn’t spoil or rot, it is relatively compact and easy to store, and it is not easily destroyed. Most importantly though, one can have about as much confidence as this world offers that someone will be willing to buy their gold in the future as has been the case throughout the history of civilized human existence.
Brazil and Turkey provide us with current examples of the virtues of owning gold. Year to date the Brazilian Real has dropped 25% and the Turkish Lira 30% versus the U.S. dollar. Despite the significant depreciation, Brazilians and Turks holding gold were able to retain their purchasing power. In both countries gold is trading at all-time highs offsetting the depreciating effects of their respective currencies.
This article should not be mistaken as advice to increase your allocation to gold to 100% and sell all financial assets. What it does imply is that in periods of economic strength, central bank credibility and dollar strength that the need to hold gold for protective purposes is minimal. Conversely, in times, like today, when debasement of currency is the Fed’s last remaining policy tool of any significance, one should retain some protection. Holding gold is simply recognition that the Fed’s actions over the last 30 years have potentially severe consequences that pose threats to the value of most financial assets, the almighty dollar and ultimately your clients’ purchasing power. Owning gold is in effect not only a short on the dollar and on the credibility of the Federal Reserve, but most importantly a one of a kind asset that protects wealth.
“Gold, unlike all other commodities is a currency… and the major thrust in the demand for gold is not for jewelry. It is not for anything other than an escape from what is perceived to be a fiat money system, paper money that seems to be deteriorating.” -Alan Greenspan 2011
Thanks for reading.
Twitter: @michaellebowitz
Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.
