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Gold’s relativity
Do not take your eye off the prize
Gold’s value is relative. It doesn’t really matter how many digits it takes to express the price. Its true value lies in what those digits represent in terms of purchasing power. During the post-World War I hyperinflation in Germany, for example, a 20-mark gold coin in 1918 purchased the equivalent of twenty marks worth of goods and services in the marketplace. By 1924 that same 20-mark gold coin (weighing roughly one-quarter troy ounces) provided the purchasing power of nearly 25 billion paper marks.
By pointing out this example of gold’s constancy, we do not intend to imply that the United States is headed the way of the Weimar Republic. What we do mean to say, though, is that those who track the nominal value of gold by itself without taking into account the current and future value of the currency in which it is measured take their eye off the prize.
What are the intentions of the central bank and federal government, we should ask ourselves, and what will be the likely effect on the currency?
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