Recently, I have received several emails asking for more details about how to price things in gold. Here is one example:

Greetings Sir Charles,

I've just discovered your blog on prices in gold, and I found it very interesting.
However, now I am curious about how the amount of gold a specific good costs is calculated.
I was just wondering if you could give me a brief explanation to help me to understand.

Thank you very much for your time!

Agustin Alvarez
Argentina

¡Hola Agustin!

The process is very simple in theory: just divide the price of something in currency by the value of gold in that same currency on the same date.

For instance, suppose I bought a house for USD 100,000 on June 23rd, 2003. Gold on that date was USD 355 per ounce. So I paid 100000 / 355 = 281.69 ounces of gold for my house. This means I had a choice: I could have used my $100,000 to buy 281.69 oz of gold, or to buy the house. Or perhaps that I had to sell 281.69 oz of gold to get the money to buy the house.

Today, I might be able to sell the house for USD 200,000. But gold today has a price of about USD 1,700, so the price of the house today might be 200000 / 1700 = 117.65 oz. On paper, in USD, I have doubled my money. But that money will buy 58% less gold – and also less food, less gasoline, etc. Not a good investment.

To build a chart, just collect a set of prices with their dates in a spreadsheet, and convert each one to gold by dividing by the gold price on that date. I usually use the London PM fix price, which can be found at the LBMA website. The resulting gold price table can then be converted to a chart by the spreadsheet program.

I offer custom charting which is great for long term charts, and charts of hard to find items, but to price financial assets, like stocks, you can also use the excellent StockCharts.com service. Simply enter the symbol of the security followed by ":$GOLD". This will do the conversion for you, plotting the prices in ounces of gold. These charts are very detailed, showing high, low, open, close, volume, and many technical studies. For example, here is a "SharpChart" of Microsoft (MSFT) priced in gold, as of 2-Mar-2012:

This chart shows that if I had bought 100 shares of MSFT in early December, I would have paid about 1.45 ounces. If I sold those shares today, I would get about 1.85 ounces of gold for them – a profit of 27% in just 3 months! Sweet! This is why we invest: to grow our wealth in real terms, to "grow our gold". Of course investing carries risk as well, as the house example demonstrates.

For safety of savings, or when out of the market, keep your cash in gold. When investing, have a money management strategy that will get you out before losses (as measured in gold) become too great.

I hope this is helpful!

Saludos,

Sir Charles

US Bonds were higher this week, recouping last week's losses and more. SHY gained 3.1% in line with USD strength, and TLT gained 6.4% reversing last week's 2.1% loss. Over the longer term, TLT is now up for the year, while SHY is down around 20%. As the crisis in Europe deepens, US Treasuries may make further gains; but keep in mind that these are highly volatile speculations, not a safe place for your savings or a good source of income.

All the major currencies bounced this week, though they are still down YTD and for the last year. The weakest was the EUR (recovering 2.4% of last week's 2.6% drop) reflecting hopes that the crisis in Italy and Greece has been resolved. I am not holding my breath. JPY was the strongest, up 4.1%.

Stocks were mixed this week, with the Dow up 0.1%, the S&P 500 down 0.8%; gold stocks as measured by HUI were down 5.4%. Japanese stocks were slightly higher, with the Nikkei up 2.4%. All four indices are much lower YTD and from one year ago, with the Nikkei leading the way, down 29%.

The Dow and the S&P 500 remain below their lows of 2009 (3.2% below and 2.4% below respectively) in spite of their nominal "gains" when measured in ever depreciating dollars. Japanese stocks are more than 20% lower. Gold stocks, which bottomed in late 2008 at 6.45g, are now trading 64% higher at 10.6g.

Commodities were mixed, with crude oil and coffee rising again this week. Copper regained some of last week's loss, up 3.8% this week. Silver and cotton each declined 1.5% for the week.

All the commodities on our list are lower YTD and compared to a year ago, with cotton showing the most weakness (down about 45%) while silver and crude oil show the least.

As the wheels come off in Europe, be prepared to take advantage of any pull-backs in physical gold, silver, platinum, and in mining stocks.

Volatility is high as rumors circulate about the latest bailout plan, change in leadership, and massive public demonstration. Do not let this fool you: governments will create the currency to kick the can down the road. It's a game of musical chairs, and nobody wants the music to stop on their watch.

But it's not an all-or-nothing game, either. Especially in Europe, there are many possible outcomes: dramatic restructuring into a United States of Europe with countries essentially devolving into provinces; Germany pulling out and leaving the rest of Europe to fend for itself; some or all of the PIIGs getting kicked out of the euro and reverting to their former currencies; and so on. What all of these scenarios have in common is massive currency debasement.

Bad debts have to be liquidated, one way or another. And while that sounds deflationary, it will trigger currency creation in unheard-of proportions as the "too big to fail" banks, corporations and governments are kept afloat.

Keep an eye on the half-life of the dollar:

There is plenty of room at the bottom of this chart for a gradual default on all the debts, public and private, that can never be paid back in honest money. But don't be surprised when at some point, maybe next week, maybe next year, or maybe next decade, the markets suddenly wake up and smell the coffee – and realize that they have been conned. By that time, you want to be as far away from fiat currencies as possible.

Also expect a gradually tightening noose of capital controls, increasing taxes, and encroachments on civil liberties as standards of living fall. All these things will be done "in your best interest", to "create jobs", to keep you "safe", and make sure "the rich" pay their "fair share". This gradualism may also give way suddenly to a declaration of war, a state of emergency, martial law or an outright dictatorship – possibilities you have to prepare for.

Watch for buying opportunities and continue to accumulate physical gold, silver, platinum and high quality resource stocks. Diversify your geopolitical risk by having some of your savings (precious metals and investments) outside of your home country. Have a place which you and your family enjoy that you can slip away to if necessary. Hope for the best, but prepare for the worst!

This Week's Market Action

All the major currencies are down for the week, YTD and for the last year. The weakest was the EUR (falling 2.6%) reflecting increasing concerns about Italy, Greece, and the whole future of Europe. JPY was the least weak, down only 0.9%.

Bonds were lower again this week, with SHY down 1.4%, and the 20 year TLT dropping 2.1%. Over the longer term, TLT is close to breaking even for the year, while SHY is down around 20%.

Stocks were little changed for the week, with the Dow up 0.05%, the S&P 500 down 0.5%, and HUI up 0.8%. Japanese stocks were the exception – sharply lower, with the Nikkei down 4.2%. All four indices are much lower YTD and from one year ago, with the Nikkei leading the way, down about 30%.

The Dow and the S&P 500 remain below their lows of 2009 (3.2% below and 2.4% below respectively) in spite of their nominal "gains" when measured in ever depreciating dollars. Japanese stocks are more than 20% lower. Gold stocks, which bottomed in late 2008 at 6.45g, are now trading 64% higher at 10.6g.

Commodities were mixed, with crude oil and coffee rising, while copper, silver and cotton declined for the week.

All the commodities on our list are lower YTD and compared to a year ago, with cotton showing the most weakness (down over 45%) and silver the least (down only 4% for the year so far).

In early September, gold was over $1900, and seemed ready to push for the $2000 level. By the end of September it had fallen to $1650, after dipping as low as $1550. Since then, it has continued to trade in the mid-1600s. Is this the beginning of a gold crash? Is the "gold mania" now behind us?

Back in March, I discussed the Half Life of the Dollar. In that article, I pointed out that the USD has been losing half of it's value every four years… and that trend remains solidly in place. But currency value decay, like radioactive decay, only appears smooth and steady when you stand back and look at the overall curve. Examined in fine detail, it comes in fits and starts, and with plenty of ups and downs!

A short-term uptrend in the midst of a long-term decline is known as a bear market rally. What might such a rally look like this time?

The USD's 200 day moving average is now 20.6 mg, implying a $1510 gold price – a level we have almost reached. If that resistance level is tested and holds, the rally may be over soon.

But when the USD hit its all-time low of 16.4 mg on September 6th, it was almost 24% below the level predicted by the half-life decay curve. In order to return to the curve, the dollar would have to rally to 21.4 mg – equivalent to a gold price of $1450 in USD. And there is no reason a rally should stop there; some overshoot should probably be expected before gravity reasserts itself and the USD resumes its downward trend. An "equal and opposite" over reaction of 24% could carry the USD to 26.5 mg – equivalent to a gold price of $1172.

Concerns about Europe and a global economic slowdown are causing investors to shift away from risk and towards the safety of cash positions. For some, this means liquidating gold positions. But for many, it means adding to gold positions. Metals without gold's monetary pedigree, especially silver and platinum, will probably trade lower in gold terms, creating significant buying opportunities. Resource stocks may also be hit hard, giving buyers a chance to scoop them up at bargain prices.

There are absolutely no signs of any real fiscal or monetary reforms anywhere in the world. Even the Swiss have abandoned their conservative economics and pegged the CHF to the EUR – tying their currency to a sinking ship. The tsunami of money creation I expect to see in the next few years will sweep all of the world's government controlled currencies to new lows… And you want to be on the high ground of gold and other tangible assets when that wave hits.

Take full advantage of this rally in the USD, EUR, and other paper currencies to maximize your risk-free gold holdings and increase your exposure to assets that will grow in gold value as governments seek to outdo each other in providing economic "stimulus" in the months ahead.

Thanks to a comment from reader Michael H, I tracked down Yale professor Robert Shiller's long term home price series and repriced it in gold. This has been added to the US Home Prices chart page.

It is fascinating to see that home prices are now lower than at any almost time since 1890, even lower than the depths of the Great Depression of the 1930s… The one brief exception being the dramatic "undershoot" of the USD's value in 1980, following the massive stagflation of the 1970s triggered by the removal of gold backing of the USD.

I have also added a chart page which will give a weekly update on a few major currencies, equity and debt markets, and commodities. As I am traveling this weekend, there may be a hiccup in updating it until the following weekend, but I will try to keep it up to date following that.

Last week, the EUR was weak, falling 0.8% while the USD strengthened by 1%. Reflecting the USD's strength and a lack of viable alternatives, short term bonds rose 1.1% and long term bonds rose 2.1%. All of the currencies are still dramatically lower YTD and from a year ago, however.

Stocks were lower, especially the Nikkei 225, which fell 1.9%. THe exception was gold stocks, with the HUI posting a 2.7% gain.

Commodities were mixed, with cotton leading the gainers, up 4.6%, and coffee leading the losers, down 5.2%. Silver was off 1.6% while crude oil and copper showed gains of 2% and 0.4% respectively.

One commodity I would be looking closely at is platinum. It is currently priced below parity with gold, a rare occurrence… and I suspect that although dramatic economic news might push it lower still, in the medium to long term, it should revert to its customary premium to gold, making it a great way to "grow your gold".

The last few days have been a wild ride for investors. With cracks in the Eurozone widening, new Fed promises of ultra low interest rates for the foreseeable future, riots spreading across the UK, and continuing unemployment in the US, there can be little doubt that massive currency debasement is now "baked into the cake".

Markets have reacted by a move to the safety of gold – the only true cash position – and away from the risks of most currencies, stocks and commodities. Major currencies are at all-time lows. Commodities, while down hard, are generally still higher than they were at the bottom of the 2008 credit crisis. Major stock indices, however, are lower than they were at the bottom of the last crisis.

Here is a quick scan of the markets, priced in gold, as of August 10th:

USD: 17.55 mg, a new all-time low
CAD: 17.68 mg, a new all-time low
EUR: 24.98 mg, a new all-time low
JPY: 0.227 mg, a new all-time low

Silver: 0.672 g/oz, has given up all it's YTD gains, but is still 82% above its 2008 lows
Platinum: 30.79 g/oz, is now cheaper than gold for the first time since December 2008
Copper: 155.40 g/tonne, is still 57% above its 2009 low of 99 g/tonne.
Crude Oil: 1.46 g/bbl, is 30.3% higher than its 2009 low
Coffee: 41.22 mg/lb, is down 22.3% for the year so far
Cotton: 17.38 mg/lb, down 63% from its 2011 high, but still 30% higher than its 2009 low

Dow Jones 30 Industrials: 188.16 g, down 26.3% YTD, and 14.6% below its 2009 low
S&P 500: 19.67 g, down 29.1% YTD, and 13.4% below its 2009 low
NASDAQ Composite: 41.79 g, only 2.2% below its 2009 low
AMEX Gold Bugs: 9.69 g, down 23% YTD, but 50% higher than its 2008 low

Short term bonds, as measured by the SHY fund, are at all-time lows. The long term bond fund, TLT, although almost as high in USD as it was at the height of the 2008 credit crisis, is worth less than half as much gold.

Some stocks are doing very well. AAPL, for instance, has given up most of it's gains for the last year, but it is still worth more than twice what it was at the bottom in 2009.

The federal minimum wage is now 127 mg/hr – the lowest it has ever been. When introduced in 1938 at 25 cents/hr, the rate was 222 mg/hr!

My advice is to stick with the safety of gold. This is the time to be in cash, and certainly not the time to be in risky fiat currencies. Platinum may be a decent speculation, however. It is very unusual to be able to buy an ounce of platinum for less than an ounce of gold. While it may get cheaper still if the economy continues to weaken, I think platinum's relative rarity and many important industrial uses make it worth the risk over the long term.