Gold has a secret power. It has long been revered as a reliable store of value, especially in the context of fiat currency systems and never taught in school.
Recent data illustrates how gold’s purchasing power has evolved over the past five years, emphasizing its resilience and ability to outperform traditional assets.
Here’s two real-world examples that shed light on gold’s role as a hedge against economic uncertainties.
Example 1: Automobiles and Gold
In December 2018, the price of gold stood at approximately $1,282 per ounce. Fast forward five years, and we observe a significant increase, with the current price hovering around $2,002 per ounce.
This price surge translates into practical advantages when considering major purchases.
For instance, a $50,000 car in 2018 would have required 39 ounces of gold.
In contrast, a $50,000 car in 2023 would demand only 25 ounces of gold.
Looking at it differently, the original 39 ounces of gold from 2018 could now purchase a car valued at $78,000, showcasing gold’s enhanced purchasing power.
Example 2: Single Family Homes and Gold
In 2018, the median home price was around $275,000, necessitating 215 ounces of gold for purchase. Fast forward to the present day, where the median single-family home price has risen to approximately $385,000.
Not surprisingly, it now takes only 192 ounces of gold to acquire the same home.
Alternatively, one could use the 215 ounces of gold from 2018 to buy a $430,000 home, highlighting the significant appreciation of gold’s value.
Despite these positive indicators, the real estate market is currently experiencing what some experts deem the largest housing market bubble in history.
According to the Shiller Home Value Index, home values have reached a record high level of 225 points.
Drawing parallels with the 2008 Financial Crisis, if housing prices were to decline by 38%, as they did during the last housing bubble crash, the average single-family home price would drop to approximately $240,000 in today’s super bubble housing crash, which some argue has already begun.
This scenario presents a compelling case for gold’s secret role as a financial safe haven and ultimate representation of “real money”.
In the event of a housing market crash, the 120 ounces of gold at today’s prices would be sufficient to purchase a home that would have been valued at $430,000 before the crash.
This underscores gold’s dual benefit of being not only inflation-proof but also an asset that gains significant purchasing power during times of financial crisis.
When we look at the value of gold as a store of wealth in a fiat currency system, the secret becomes clearly revealed.
As financial bubbles begin to burst, gold continues to assert its position as a reliable and versatile asset, verses the continual loss of purchasing power of fiat currencies due to constant inflation and market pricing manipulations.
