I recently came across a presentation made on May 20th to the US Senate Committee on Homeland Security and Governmental Affairs by Dr. Benn Steil, a Senior Fellow and Director of International Economics at the Council on Foreign Relations in New York, entitled "Financial Speculation in Commodity Markets" (pdf). Dr. Steil also gave a speech the week before at the New York Hard Assets Investment Conference entitled "Is the Dollar Doomed?" (text and audio).
Reader Michael Chmura posed an interesting question today:
The USPS seems to be raising prices frequently. We have another one cent postage increase coming 5/12/08. Can you post a chart for US Postage priced-in-gold?
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I've updated many charts to 4-April-2008, and added the Euro to the CAD vs. USD chart. It is worth noting that although the USD has fallen against the EUR and CAD, all three currencies have been losing value. They are just losing at different rates.
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Ever wonder how a stock or an index like the Dow Jones Industrials is doing at the moment, priced in gold? Is it up or down from yesterday? How much?
To do this the "old school" way, you would collect four numbers: the price of gold and the price of the security at the previous trading day's close, and their current prices, all in the same currency. Calculate the previous closing price of the currency unit (USD, GBP, JPY, EUR, etc.) by dividing 31.1035 by the gold price, giving the value of the currency unit in gold grams. Do the same with the current price of gold. Then multiply the prior closing price of the security by the prior closing value of the currency to get the previous gold price of the security. Multiply the current price of the security by the current value of the currency to get the current gold price of the security. Now subtract the security's prior close from its current price to get the gain or loss in gold grams. Divide this value by the gold price of the security for the previous day to see the percentage gain or loss.
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In the post of March 11th, Big Day on Wall Street, I restated a Financial Times news story in gold terms but neglected to translate the Fed's bailout price of $200bn… When I went to make the correction, I was stunned!
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You might have noticed that my previous post on Silver and Stocks didn't once mention the US Dollar. Why? Because it's irrelevant. It may go up, it may go down. Most likely down, but so what? I try not to hold any more of it than necessary, unless I have reason to believe it's in an extended uptrend and decide to speculate.
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I realized yesterday that it is easy to calculate the price of an ounce of silver in gold grams if you know the gold-silver ratio (Duh!) You just divide the ratio into 31.1035 (the number of grams in an ounce.) And the ratio is well documented throughout much of history. For instance, the website Measuring Worth provides annual values for the gold-silver ratio going back to 1687. I've used this data to create a new long term chart showing the price of silver from 1700 to today, and added it to the Silver chart page.
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So what? It used to take about twenty US Dollars to buy an ounce of gold. Now it takes over a thousand of them.
That ounce of gold hasn't changed one bit. In fact, an ounce of gold is still an ounce of gold, just as it has been for thousands of years. It can be used to make the same amount of jewelry, it can be beaten out into the same amount of gold leaf, it can plate the same amount of wire, and in general, can be exchanged for about the same amount of other goods and services as it always could. It buys much more of many items than it used to, thanks to global trade, the productivity improvements of automation and the wonders of Moore's Law.
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Another fun look at the news, without the distorting effects of the US Dollar. For context, be sure to check out the charts on crude oil and gasoline.
From a March 11, 2008 story in the Associated Press:
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Another story that caught my fancy, restated in terms of gold for your entertainment. Enjoy!
From a March 11, 2008 story in the Financial Times:
As stated in dollars:
Wall St enjoys best one-day rise since 2002
By Chris Bryant in New York
Published: March 11 2008 13:01 | Last updated: March 11 2008 20:41
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