With fiat currencies all over the world being manipulated by central banks, prices are being distorted beyond all recognition. Successful investing requires having a good idea what things cost, and what they are really worth – and using the world's oldest and most stable form of money, gold, to compare prices is one way to get that insight. Below you'll find a sample of prices measured in grams or milligrams (1/1000 of a gram) of gold.
Currency Watch:
| Change from | |||
| Price in Gold | Week ago | Year ago | |
| USD | 22.5 mg | -1.4% | -19.2% |
| CAD | 22.8 mg | -0.4% | -14.2% |
| EUR | 30.6 mg | -1.0% | -19.0% |
| JPY | 0.270 mg | -1.2% | -11.7% |
After revisiting its all-time low of 21.89 mg on January 3rd, the USD rallied during January, peaking at 23.58 on January 28th, up 7.7%. Since then, it has been drifting lower, and currently stands 2.7% above the all-time low. A similar pattern exists for most other major currencies, though the Yen and Canadian dollar have lost less ground in the past year than the US Dollar and Euro. [Washington's Birthday update: as of 21-Feb-2011, the USD stands at 22.17 mg, only 1.3% above it's all time low.]
Bond Watch:
| Change from | |||
|---|---|---|---|
| Price in Gold | Week ago | Year ago | |
| 1-3 Year (SHY) | 1.88 g | -1.2% | -18.2% |
| 20+ Year (TLT) | 2.01 g | -1.4% | -15.4% |
US Treasuries have been a terrible investment for at least the last 8 years. Since 2002, shares of SHY, an ETF that tracks the 1-3 Year maturity T-Bonds, have lost 74% of their value, despite an apparent increase of 28% when measured using dollars – and these figures include interest paid! The long bond, as measured by the share price of TLT, is just as bad, having lost 69% of its value since 2002, despite a smoke-and-mirrors “gain” of 56% when measured in dollars. And as we'll see in a moment, these losses are not simply due to a “gold bubble”. Priced using dollars, most things you buy every day have increased in price dramatically since 2002 – gasoline has more than doubled, food prices are 2.6 times higher, cotton prices are over 4 times higher! The lion's share of these increases are caused by dollar depreciation. And keep in mind that the so-called gains are taxable… while the real-world losses are not deductible. The government takes your money at full value, repays you with currency that will buy much less, and taxes you on the difference – all part of the miracle of inflation!
Equity Watch:
| Change from | |||
|---|---|---|---|
| Price in Gold | Week ago | Year ago | |
| DJIA | 278.58 g | -0.5% | -3.7% |
| S&P 500 | 30.19 g | -0.4% | -1.9% |
| Nikkei 225 | 2.93 g | -0.6% | -7.4% |
| HUI | 12.46 g | +4.3% | +7.9% |
Major stock indices have been falling for the last 10 years. The Dow Jones Industrials, for instance, hit its all-time high around 1,400 gold grams in 1999. It has since lost over 78% of its value. For the last two years, major indices have been pretty flat after bouncing off the lows set in March of 2009. As with bonds, nominal prices have risen as currency values have fallen, leaving investors with purchasing power losses and huge tax liabilities. One area that has bucked this trend is resource stocks – a specialty of my friends at Casey Research. Selected issues have soared, and even the broad resource indices like the HUI show real gains over the last year.
Commodity Watch:
| Change from | |||
|---|---|---|---|
| Price in Gold | Week ago | Year ago | |
| Crude Oil | 1.91 g/bbl | -2.1% | -13.1% |
| Uranium | 1.62 g/lb | -2.4% | +40.7% |
| Silver | 0.718 g/oz | +5.0% | +63.0% |
| Copper | 99.9 mg/lb | -2.2% | +11.8% |
| Coffee | 61.1 mg/lb | +6.3% | +63.7% |
| Cotton | 44.3 mg/lb | +2.2% | +106.8% |
Each of these commodities has its own story to tell… tales of weather (good and bad), of mine cave-ins, political instability and bureaucratic stupidity.
Silver is skyrocketing, not just in dollars, but in gold value as well, having closed convincingly above its long term resistance level at 0.7 grams of gold. It will be interesting to see that level retested in the weeks to come. If it holds, the 1.0 gram level, last seen in the early 1980s, could be the next stop.
While it is clear that the trend is mostly up, what is not so clear in the numbers above is the bigger picture – that most of these commodities are rebounding off their all-time lows.
Crude Oil, for example, finds its long-term support at around 1 gram per barrel, and hit 1.1 grams two years ago in February of 2009. Although it has recovered to almost 2 grams, crude traded over 4.9 grams per barrel as recently as 2008. Coffee is another example – in May of 2010, it traded under 34 mg per pound. Although it stands today at 61.1 mg, in 1997 it traded over 230 mg/lb (and at a dollar price very similar to today's, highlighting the massive depreciation of the dollar.) Cotton has really been on a tear (pardon the pun) gaining another 2.2% this week following a 12.4% rise last week, and more than doubling in the last year. But these gains are coming off record lows of less than 20 mg/lb in early 2010. Cotton's 30 year average price is 53.2 mg (20% higher) and its record high of 250 mg is more than 5 times today's levels.
Chart of the Week
This chart was inspired by the events in Egypt and elsewhere in the developing world, where concerns over food price rises are playing a major role in people's dissatisfaction with government. As one who is profoundly dissatisfied with all governments, I think this may be a good thing. But what is really going on here? When you strip away the veneer of currency depreciation, we see that food prices are actually near their 20-year lows, not making new highs!
In fact, the overall food price index would have to rise 72% from today's levels just to get back to its 20 year average. The Meat component would have to rise over 140% to get in line with its average. And even Sugar, the fastest rising component, would need to rise a further 20% just to revert to the mean.
The real problem here is that governments are destroying the purchasing power of money – your money – even while technology and intelligent employment of capital are reducing the costs of food, technology, energy, housing and transportation. Unfortunately, governments are kleptomaniacs. They corral your money with capital controls, then steal it openly by raising taxes in the form of new regulations, closed loopholes and higher rates; and stealthily, through currency destruction and the taxes collected on the resulting pseudo-gains. This has left most households with less disposable income than they had in 1950 – requiring them to work two or more jobs just to make ends meet!
But that's a story for another edition…
In the meantime, don't be fooled by bogus government currency shenanigans! Keep track of your investments' true value, using gold.
Sir Charles
