Guest Post: Start Thinking in Terms of Gold Price

Tyler Durden's picture

Submitted by Jeff Clark of Casey Research

Start Thinking in Terms of Gold Price

A young woman – let's call her Andrea – inherited some money from her father in late 1997. She was only nineteen at the time. Not knowing the first thing about investing, she kept the money in stocks and bonds as her father had, wanting to hold on to it until she really needed it. She played it "safe."

She got married last year and so began to withdraw the money. She was pleased to see a chart from the broker that showed her portfolio was up about 20%. While admittedly not a great return over 12 years, her account had nevertheless survived both the 2000 tech crash and the 2008 market meltdown. She knew not all investors could not say the same thing.

Andrea began spending the money, thankful that she'd saved the money to start a family. But a cruel reality slowly began to set in: the money didn't seem to be going very far. She couldn't quite put her finger on why, but it all clicked when she saw the lofty price of a new SUV she wanted. She remembered her Dad's favorite vehicle back in the day – a Ford Ranger pickup – and recalled him boasting that he paid only $8,500 for it in 1992. A comparable vehicle today costs more than twice as much.

It hit her like a slap in the face. While the number of dollars in her portfolio was greater than what she inherited, they bought less stuff. It was such a revelation that she actually uttered the words out loud…

"My investments didn’t keep up with inflation… I LOST money!"

Gold Is the Benchmark

Whether they realize it or not, the same thing is happening to most people's investments. Over time, real returns are diluted because of inflation. The only reliable way to measure the value of investments is in terms of a financial intermediary that cannot be inflated: gold. That way, investors can tell how they're doing in real terms.

This has practical ramifications for all of us. Someday, we (or our heirs) are going to spend some of the wealth we are accumulating. How much we can actually buy with our gains will directly depend on how hard inflation has hit whatever our investments are denominated in. A 15% gain in dollars is only 9% in real terms if USD inflation was 6% during that time frame. A money-market return of 1% is a losing investment if denominated in something inflating at 3%. In Andrea's case, by keeping all her funds in dollars, her 20% gain turned into a 16% loss in purchasing power.

In other words, since most people don't adjust for inflation, their investments are not doing as well as they think.

In contrast, if Andrea had kept part of her inheritance in gold, that portion would have grown 332% (from December 1998 to June 2010, when she got married). More importantly, she would have lost no purchasing power during that time. In fact, after inflation and taxes, Andrea could've bought 50% more in goods and services than in 1998, if purchased using liquidated gold. She could buy two small pickup trucks today with the same number of gold coins it took her father to purchase the Ford Ranger in 1992. (This all while gold went nowhere for those first three years and lost a third of its value in the fall of 2008.)

With gold as her savings vehicle, she could have completely sidestepped the erosion in the dollar.

How have you done?

Re-Indexing in Gold – "This Changes Everything"

To demonstrate the effect of currency dilution, we've developed a tool for re-indexing popular indices from dollars to gold. Doing so provides a more accurate picture of the dilution of investments made in dollars (and would work just as well in euros or other currencies). We use gold in grams so the indices won't be priced in decimals.

Here's how the DOW has fared since 2000 when measured in both dollars and gold:

(Click on image to enlarge)

While the Dow Jones Industrial Average is up 4.7% in dollar terms, it's lost 82.5% when measured in gold grams. An investment of $10,000 on January 1, 2000 would total just $10,470 today (excluding dividends) – but in gold it's worth only $1,750.

In other words, investments made in the DJIA Index have not only lost money in real terms, they're worth a pittance when measured in gold. This is a breathtaking loss.

How about a broader measure of stocks, like the S&P 500?

(Click on image to enlarge)

The S&P 500 is down 15.1% in dollars since 2000, but it's lost 85.8% against gold. If you’ve owned an S&P index fund, you not only have fewer dollars that what you started with (excluding dividends) but have fallen dramatically behind when compared to the monetary asset of gold.

How about the technology sector?

(Click on image to enlarge)

Tech stocks show a whopping decline of 38% in dollars over the same time period, but money invested in that sector has lost 89.7% when measured in gold grams.

We also decided to look at some foreign markets. Are they doing better than the US?

(Click on image to enlarge)

The stock market for Hong Kong, one of the largest exchanges in Asia, shows an increase of 6% in dollars. However, it’s lost 82.3% when priced in gold.

(Click on image to enlarge)

The primary stock market for UK companies is down 22.4% since 2000 calculated in dollars, but has fallen 87.1% in gold grams.


Obviously, measuring portfolios in dollars exaggerates performance in real terms. This isn't to say that one shouldn't invest in stocks. It means that one must: a) be cognizant of how results compare to gold or other real assets that one might buy with whatever currency one is dealing with; b) adjust brokerage statements to allow for currency dilution; and c) not rely on stocks in general to outpace inflation.

In fact, it isn't just investments that are eroding. Our entire world is being devalued, even as one reads this article – from groceries and gas to cars and college. Someday we'll want to spend the gains we're making; how will we avoid the long-term erosion of the currencies we invest in?

The answer is simple: save in gold. The dollars you keep in a money-market account will steadily lose value year after year. In fact, monies deposited into a simple savings account in 2000 have lost an incredible 25% of their purchasing power since then. Conversely, if those savings were denominated in gold, the wealth would have not only been preserved but increased. We believe this trend will continue – and accelerate. It will become increasingly important to your financial future that you cash in earnings from time to time and save them in precious metals – not in dollars, euros, yen, yuan, or even Swiss francs.

Don't make the mistake Andrea did. Save in gold. That new car or retirement home or world travel you want to spend money on someday will be a lot easier to afford if your savings are denominated in the one asset that can't be debased, devalued or destroyed.

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PaperBear's picture

Yep, how many ounces does something cost, not how fiat paper dollars does something cost.

SilverIsKing's picture

Too many people still see GLD as Gold and SLV as silver so they view these "stocks" as being expensive.

Hard lesson gonna be learned.

TruthInSunshine's picture

I have a very special tip for you [Marc Faber-esque, heavy Austrian accent]:

Stocks will crash again, not long from now, and then all the talk of gold (as much as I love me precious), silver, oil and other alternative, hard, real currencies to toilet paper fiat will be rendered moot for some time.

You see, we are clearly merely experiencing a sharp bear market equity rally within a secular bear market, the likes of which we haven't seen since 1932, with U.S. equity markets experiencing inflation adjusted losses of some 60% since 1994 (and much worse for non broad indexed beta chasers).

The Bernank will be exposed as the genuinely impotent Central Bankster he's always been to even those who still now think he's imbued with some sort of magical alchemy, although their view of him as such thus far must have been constructed on some sort of analysis completely devoid of the concept of relativity.

The only real question is whether we go full blown Nikkei, and odds are better than not that the longer The Bernank flattens rates with ZIRP, the more likely we'll be

turning Japanese.

I really think so


*For those interested in one of the biggest scams that has been sold to the investing public, please reference survivorship bias, and its absolutely crushing (but rarely mentioned) effects on what are reported to be (falsely) the historical average returns of U.S. equity markets, and pay special attention to peer reviewed studies that decimate Jeremy Siegel's entire thesis and his premises contained in just about every claim made by him.

greased up deaf guy's picture

why do i get the feeling robotwerp will be mia on this thread?

Oh regional Indian's picture

Why do i get the feeling that Silver is always such a deep secondary. How does all this look priced in Silver? Huh?

Remember, Dorothy wore Silver Slippers in the original.



BlackVoid's picture

"Stocks will crash again, not long from now"

I am not so sure.

If that is the goal, the FED can prop up the stock market indefinitely. They can print dollars and buy stocks. As easy as that.

In fact, I think they have been doing this for years (if not decades). It all depends what they want.

defencev's picture

Let me put it this way: this article is an absolute bullshit. You probably will be very happy to see your portfolio skyrocketing after Gold will be back to 300 US per ounce but it will not be very helpful in real terms. I recall some time ago similar pitch was made by one boutique Swiss firm which mostly prey on US customers suggesting that the portfolio should be measured in Swiss francs. I guess their customers became nominally happy when the Franc was devalued overnight. The truth is that Gold bugs will push for Gold as an asset unit, Swiss charlatans will try to persuade you that Swiss Franc is the right measure and local brokers will tell you that the best way is to stay in US dollars. As was indicated some time ago by Mark Faber, one of the problems facing an investor is THAT THERE IS NO MEANINGFUL UNIT TO MEASURE THE ASSETS. It used to be US dollar but nowdays it is just a joke. I wonder why anybody would pay any attention to blogers mostly posted over here who just a bunch of motherfuckers with no vision of markets in comparison to relatively few voices who at least have a proven investment record and true vision like Mark Faber. Just ignore the garbage posted over here. This side provides from time to time an interesting factual information but when it comes to "analysis" it is biased and of zero quality ( I would say gives you zero hedge if you are an investor or just simply try to save for retirement).'s picture

THERE IS NO MEANINGFUL UNIT TO MEASURE THE ASSETS. It used to be US dollar but nowdays it is just a joke.

The dollar used to be a unit of weight equaling 371 4/16th grains (24.057 grams) of pure silver, or 416 grains of standard silver (standard silver being defined as 1,485 parts fine silver to 179 parts alloy). This kind of dollar was no joke as a unit by which to measure assets.

Today's dollar is a joke because it is simply a ledger entry which is no way representative of anything of tangible value.


Pladizow's picture

To: Defencev

YOUR WORDS - "Just ignore the garbage posted over here."

We'll all oblige!

NotApplicable's picture

Until gold hits 300, your point is moot. If you think gold will reach 300...

... yeah, whatevah.

Leraconteur's picture

It can easily do so. At that point, the DJIA will be at 3,000 and the SPX at 300.

That's when all assets deflate in value.

You will, however, retain the value of the gold vs. the SPX or other asset classes.

trav7777's picture

go back to dickerforum, lemming

BigJim's picture

I'd sell your gold now, if I were you, defencev. I'll even give you a 10% premium on what you think it's worth.

Where shall I send my 330 clownbucks per ounce?

Calmyourself's picture

Funny I was reading some 2-4,000 year old historical writings the other day and gold and silver were mentioned frequently Swiss francs not so much..

bill1102inf's picture

And your point is??? When those 'PAST' currencies/countries went bust - so did their gold valuation. When we reprint, gold will be worth what it was in the early 1900's compared to everything. good luck

johny2's picture

you may be right, and human population may be back to 1.2 billion, together with productivity. thanks and good luck to you too.

WhiteNight123129's picture

I agree this post is bad, but frankly you are not measured in your overall assessment of this blog. Zero Hedge is a news outlet with very good quality and interesting insights overall. THere is no recommendation to go long say Titanium Oxide and Short Iron ore, or go long MTG and short the dollar . The universal theme though is that while teh debt is being destroyed Gold is still a good bet. I think you saying other people are motherfuckers is kind of a circular argument, just take what is interesting in this blog and leave teh rest, pick and choose what you like and avoid trying to be an arsonist just because one post is particularly bad.

Freddie's picture

Full Metal Jacket - bitchez!

Beans, bullets, Bibles and bullion.

CvlDobd's picture


Without those the Zionism wouldn't be so rampant and perhaps the problems wouldn't loom so large. Thus making the need for your other items less.

If only...

Clinteastwood's picture

Are you utopian?  Prejudiced? just ragging off?

Honestly, you feel threatened by the Bible?

Have you ever actually read it?

Didn't think so.

Try to become a bit more informed.  Here's a challenge: read the most popular, most published, most read book in the history of this world.....right you guessed it, the Bible.  Start with the book of John in the New Testament.  It's an easy read.  Then come back to Zerohedge and let's hear you again.

CvlDobd's picture

I've read it. Thanks.

Read the book of Mormon too.

Bits of the Quran, can't say the whole thing. It's on the bucket list.

I try not to blindly bash. I have my reasons. Not everyone loves the book Into Thin Air even though I like it. Religious texts don't make me think, "wow this is an epic book I should base my life around, and if possible find a group of people to give 10% of my money to. " they actually just scare me with the overbearing violence and hypocrisy.

Let take the 10 commandments. Though shall not kill seems important. Nephi 1 in the book of Mormon. Nephi kills a man and God is cool with it. I told that to some missionaries at my door. I said I would sign up for the church if I get to kill people like Nephi.

Calmyourself's picture

You read the bible but you get the Ten commandments wrong..  It does not and never has said do not kill, it says do not MURDER you moron telling us that we are cretins and you cannot get the Ten commandments right.. STFU..  Oop's am I a hypocrite or are you just an ignorant tool with opinions and little actual knowledge?  Read the ten commandments and then the tracts laying out the difference between killing and murder and come on back to fight club..

Clinteastwood's picture

Calmyourself.  Even if he has read the Bible (I get lied to for a living and that sounded like a whopper), he has no spiritual vision.  He's more concerned than anything else about the possibility that some church will insist on a 10% tithe.  Be happy you are not so cursed.

CvlDobd's picture


Seems minor. I said I read it, not memorized. Thief, robber. Banker, loan officer. Politician, liar. All one and the same to me.

Read your username.

Mr. Eastwood is right. I do have a problem with the money grab by organized religion. At the end of the day though, I just don't believe in God. That's cool if you do. We can discuss it here on zerohedge.

Calmyourself's picture

Lol indeed, he finds it a minor difference... Okay your just a fool, everything you say from this point forward is spoken through a veil of ignorance, cloaked in the false confidence of the truly uneducated.  I say that with a resting pulse rate of about 70.

constitutionalist's picture

Have any of you really religious guys played the game "telephone" as a kid? I did, and just about everytime the story changed..But I've also seen the movie "goodfellas" too. Those 2 things remind me a lot of religion. And I have found that the most "religious" people dont give a flying fuck about anyone but themselves, so im going with a) science b) just try to treat people how i want to be treated, but hey, i dont know a thing, and neither does anyone else, we all just keep reading books and hoping.. 

Clinteastwood's picture

Do you know where that idea came from about treating others as you would have them treat you?  Hint: it wasn't from "science," or a movie.

constitutionalist's picture

the funny part of that statement is that I dont believe in religion and it came from the bible, and yet the people who believe in the bible dont believe in that statement. interesting how that plays out huh? but thanks for reminding me dad

kkam's picture

...the most popular, most published, most read book in the history of this world.....

Bullshit. How many of those bibles were actually willingly purchased by people and willingly read? I'd guess 90% of them were forced down people's throats at gun-point, or given away as freebies with some food or clothes, or put in hotel rooms for free. And b4 you get all worked up, I've read it, cover to cover a few times. A more violent, disgusting, book, glorifying incest, rape, murder, pillage, one that contradicts itself all over the place, would be hard to write. I've also read the koran, the gita, buddha's gospels, and the historical truth of how the bible was composed. The bible is a work of fiction based on some wisps of historical truth, written by people interested in power over others. You've got to be truly brain-dead to think the bible is anything but the biggest curse to befall mankind. 

Clinteastwood's picture

That wasn't even a nice try.  Is there another book you have in mind more popular/published/read?  You claim to be well-read.  That's good, as long as you're not so open-minded that your brain falls out.  The biggest curse to befall mankind isn't being overeducated beyond your's the lack of spiritual vision.  

Ace Ventura's picture

"...and the historical truth of how the bible was composed. The bible is a work of fiction based on some wisps of historical truth, written by people interested in power over others."

I assume you have proof of this? By extension, what gives you reason to trust whomever wrote the 'historical truth of how the bible was composed', any more than you trust the authors of the bible itself? How does the bible specifically grant power to those who seek it over others? How does your 'non-dead brain' attribute the biggest curse to befall mankind......with the bible? And you read it cover to cover, multiple times?


Divine Wind's picture


Smells like we got some Jew-hatin' going on.

As I have repeatedly said, when you peel back the layers of coffee house bullshit talk and burrow down on the reasons for dislike of Jews (often referred to Zionists to hide their cowardice), it ALWAYS comes down to money, complaints about Jewish prowess in a business dealings or how Jews are found at the top of the sciences and basically everything else in the world that has serious value and meaning.




WhiteNight123129's picture

I don´t care about the Jews, neither in a bad or a wrong way. To me jew is an adjective not a substantive. I just do not care.

trav7777's picture

that's complete horseshit.  The great scientific minds throughout history were anglosaxons.  There were relatively few jews.

jews dominate nobels because they added categories in jewscience like economics.

you find jews galore in shit like economics and finance, peddling race angst, and pornography or other cultural smut.  They've made fortunes on every vice trade known, including running most of the slave trade from Lousiana to south america.

yes, of course, EVERYONE hates the poor victim jews because they're just so damned smart and good at business.  Typical nonsense.  They use clan nepotism to dominate societies but are the FIRST to complain and bitch whine and moan if such a thing were used against them.

They have the fucking ADL for that.  But where is the ADL when the entire Fed board is semitic?

constitutionalist's picture

I truely dislike any "general racism/anti semitism". There are good and bad people in every race/religion. We're all assholes and scumbags, i dont care where youre from. Most people who hate jews dont know any jews. just hate them because they have been taught that, its unfortunate that we only know what we have been taught. the funny thing is that if i wasnt some Irish prick and was born in say..Iraq, I would believe what they taught me. so basically what im saying is we are what we have been bread to become. use your brain, both sides, and try not to be bias for a second and youlll realize we are ALL the same. want the best for our families, want the next generation to do better than us, want to work, have a home, eat nice food, fuck a little, doesnt matter if youre chinese to estonian, or american or arab, we all want the same. we just all need to see that. i promote peace rather than violence and never use violence to promote peace

Imminent Collapse's picture

MSM is to ZeroHedge

as the Bible is to the Urantia Book

Bansters-in-my- feces's picture

Freddie,skip the bible,and add babes,and you got a bitch'n list.

But don't put the babe near the beans byproduct,or the bitch'n babe will be bang'n your bullets.... and it will be ,bye..bye......Freddie


When can I start "thinking of the gold price" in terms of the gold price? 

WhiteNight123129's picture

This calculation is wrong because over the medium term gold is not stable against goods and services. Its ratio over M1 is not constant and it is investable. A better way is to use a realistic inflation index like shadow stats or use another non investable commodity index that is very stable. The closest commodity index to general inflation is processed tobacco, not substituable, very inelastic demand, very steady increase in price, you to correct tofarm productivity though. This calculation is wrong again, using Gold price post 1980 would result in saying that there was deflation in the 1980s which is absurd. There was just lower inflation and crash of Gold. We are far away from over priced Gold today but that is not the point.

akak's picture

I also take issue with the following absurd statement from the article:

The dollars you keep in a money-market account will steadily lose value year after year. In fact, monies deposited into a simple savings account in 2000 have lost an incredible 25% of their purchasing power since then.

"25%"?  Are you FUCKING kidding me?  Who claims this --- Bernanke?

Prices overall are up at the very least 50% since 2000 (more likely in the range of 60-70%), and anybody who would try to deny that is either an idiot or a liar.

Pool Shark's picture



But, but, but...

Consumer electronics and Chinese plastic stuff have gotten cheaper since 2000...


AldousHuxley's picture

Your leather running shoes are now made in plastic molds.


Central banksters will say that's increase in life quality, but men on the street knows better.


Capitalism doesn't reward quality, but quantity of shitty quality and call it progress.

Totentänzerlied's picture

Capitalism!?! Where! Damn, I missed him again, sneaky bastard! Been waiting all my life to catch a glimpse!

Clinteastwood's picture


Attention math majors:

What we have here for an economy is a function:

Whatever the market will bear.......

.........divided by........

the lowest common denominator.

akak's picture

Consumer electronics and Chinese plastic stuff have gotten cheaper since 2000...

Get back to me when shitty Chink-made plastic crap and i-dildoes become an unavoidable necessity of life or mandatory expense on the order of groceries, utilities, gasoline, clothing, insurance and taxes.

BigJim's picture

Dear Mr. Akak,

You may find prices are up 50% in the last ten years, but that's because you're wasting your bonuses on food and clothing instead of hookers and blow like the rest of us.

Yours Sincerely,

The Elite

WhiteNight123129's picture

Agreed this is a bad post Tyler

In Fed We Trust's picture

Why not dump all that paper bullshit and invest in

Peace & love

Your a trader
Always pus in sheeple

Back into the caisano

What kind of tyler dryden is That?

In Fed We Trust's picture

So. I suppose when money goes electronic

Gold will go to zero over night

I guess thats why they call them



Tyler willbe herding the sheep back into the yars for another feeding.