5/10/09 What Is The True Value Of Gold In 2009 Prices

Precious Metals Market Analysis, By Michael Pennington (Copyright 2010 Pennco Coins)

First, you have to think for a moment as if it’s 1971. Gold is selling for $35. This is the year Nixon breaks it from ties to the dollar. Gold prices start climbing. By 1975, it’s hit $196. And by 1980, we’re talking $850. Sure, you say, that I remember. But maybe you also remember back then you could also make $27,700 per year and it was a pretty decent living. About as good as making $100,000 per year today.
You could also buy a house for $50,000 then and, just on an inflation basis, it would be worth $250,000 today. (In real estate terms, it might sell now for $350,000 or more.) And back then, you could retire on $270,000 in savings… and it would be as good today as being a millionaire.
So you can see, trying to compare yesterday’s gold price to today’s — on an even basis — is like trying to compare apples and oranges.
Take a look at this chart…

In today’s dollars, 1975 gold at $196 is more like $750 in the current market. And 1980 gold, the peak year at the historical price of $850, would now clock in closer to $2,176. And remember, this is what you get using only the most conservative market calculation of gold’s worth. There are other, even more telling ways to value gold.
Remember, for a good part of America’s history, every dollar in your pocket was a dollar backed by gold. So it’s not so crazy to ask yourself… if America has 8,180 tons — nearly 261.7 million ounces — of gold in reserve… how many dollars does that buy?
When dollars became unhinged from gold, the printing presses at the Fed cranked up. By 1980, for every ounce of gold in America, the financial system carried $6,966 in cash. That’s $1.8 trillion total. But get this — by the end of 2005, the total real money supply shot to over $10 trillion.
That’s $38,349 in circulation for every ounce of gold in reserve!
Of course, it’s even higher now after the Stimulus and Bank Bailouts. The printing presses are still cranking around the clock as we head into 2010. Only now, it’s much harder for you to know how bloated the actual money supply has gotten. See, by March 23, 2006… the number had gotten so embarrassing… the Fed actually “retired” a number, “M3,” which was the most broad-reaching measure of how much cash floats around in the system.
Yep. Instead of fixing the problem, the politicians just stopped talking about it. Is that any surprise? Fortunately, you don’t need Washington’s help to get the real picture of what’s happening today in the economy… or to find out what’s next for the price of gold.


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