Monday, August 13, 2012

Gold And Cpi Do Matter

I was curious about the value of gold and America's CPI (Consumer Price Index). What relationships exists between the gold and the CPI. Year 1950 is the base year in which I purchased 34.72 dollars of CPI. From 1960 until 2010 I show what 34.72 is worth in that year's dollars. CPI inflation % shows the yearly increase from the base year. While CPI to gold shows what percent of one troy ounce of gold does CPI equal.

So I built the simple spreadsheet listed below.

--------CPI GOLD -CPI--------CPI to
Year VALUE VALUE Inflation% GOLD

2010 4.16 1,410.25 804.84% 22.28%
1960 .64 .27 22.81% 120.90%
1950 .72 .72 0.00% 0.00%

The value of gold stayed ahead of CPI inflation by double digit percentages. An exception being 1960 and 1970 where CPI exceeded the value of a troy ounce of gold. I pose a small question for my readers. Why does the 2010 cost of goods and services within the CPI cost 804.84% more since 1950? The dollar is a dollar. Has inflation taken its toll? Congress will tell me quick that the prices went up. Everything costs more now. After checking decades old newspapers I can see that prices were cheaper in 1950 than 2010. Everyone is aware of inflation but few understand deflation. This of course is my statement of fact and may be an assumption that I will regret.

Dictionary dot com says inflation is a persistent, substantial rise in the general level of prices related to an increase in the volume of money and resulting in the loss of value of dollars.

While deflation is a fall in the general price level or a contraction of credit and available dollars.

Disinflation is a period or process of slowing the rate of inflation.

My college economics teacher stressed that when government prints more money than the value of goods and services it is buying things on the cheap, gold would probably grow in value. The market place will naturally adjust to there being more dollars in circulation by revaluing prices upwards. A loaf of bread cost 1.10 dollars until the printing press produced X dollars more. Now that same loaf of bread cost 1.39 dollars. The value of my money shrunk by 29 cents.

If a government buys back some of it currency from the market place. Then prices fall to match the availability of fewer dollars.

With that said, a citizen has a simple decision to make. Find an asset that stores value recognized by others. Two recognized stores of value are silver and gold. Not paper certificates of deposit or currency. No, I mean physically owning gold or silver. Perhaps storing it in a bank deposit box. A bar of the gold or coins such as the American Buffaloes and Eagles, Canadian Maple Leafs, or South African Krugerrands can store value for you.

Americans haven't noticed how much currency one needs to carry in order to handle your daily spending. One reason is credit or debit cards equals not having to carry around bags of money just a slim plastic card.

I'm not on a rant about America falling. Any nation that treats its currency or debt like us has had rude awakenings. Germany, France and Great Britain should now know better from its recent experiences after World War II.

We need to take the credit / debit cards and check book away from our elected officials. They should only spend what they take in on taxes. Turn off the currency printing presses for a while. It would be nice to celebrate no governmental spending days. Sooner rather than later other governments are going to say, "I don't want to buy your debt! It's not worth anything."

Our politicians need to check into the Betty Ford's clinic for addiction treatment. Not for drugs or alcohol but our money!

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