Monday, March 5, 2012

The Prices of Everything in Terms of Gold

For those who had problems in math class with word problems Charles Vollum spells it all out:
Recently, I have received several emails asking for more details about how to price things in gold.... 
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.

Oil prices, for example, are not soaring in terms of gold (which means what is really going on is that the dollar is depreciating)

 Soaring gas prices? Not when they're priced in gold

Here's the cost of an elitist education in terms of gold.
The cost of going to Yale in 1900 is almost identical to what it costs gold terms



  1. This comment has been removed by the author.

  2. Check out his half-life-of-the-dollar posting (which he keeps updating periodically):

  3. I love pricing stuff in Gold. It unveils so much...

  4. So, except for a brief gold spike in 1980, the chart above shows that a Yale education has never been cheaper in terms of gold than it is today.

    So is a college education today underpriced, or is gold overpriced?

    1. Gold is not overpriced. Gold essentially is static. The arbitrary values of monopoly money are based on perception, so how many paper pieces it takes to buy something changes all the time. Gold does not. That is why gasoline got lower. Better efficiency of production and distribution brought down real costs.

  5. Anon, 9:00 a.m., in regard to Yale.

    It means that the price for a Yale education is fast approaching -- monotonic down -- its value, zero.

  6. Robert, I must point out this calculation will only compare gold prices with USD being stuffed under a mattress and is not adjusted for inflation (or returns earned with USD in an interest bearing checking/money market account).

    Nonetheless, your point remains the same.

  7. @anon 9:00

    Over time in a free market the price for goods and services should approach 0. Think about computers and electronics from 1960 until today measured in terms of Gold. The chart would show its never been cheaper to buy a computer.

    Would you still ask the same question? Are computers underpriced or is Gold overpriced?