Precious Metals and Real Value of Money

Back in 1934 the U.S. government made ownership of gold illegal. And, if that wasn't bad enough...

The federal government confiscated gold.

In the year 1934 the price of gold was given a fixed price of $35.00 per ounce and silver was given a fixed price of 50 cents an ounce.

Now, you might think that those prices look like bargains and if you do...

Then start thinking again, because there's a 'time-value' to money that has to be entered into this equation...

What that means is: yesterday's dollar is worth more than today's dollar. Always has and always will.

Or, put another way: Yesterday's dollar had more buying power than today's or tomorrow's dollar.

Now, at my disposal is a handy device known as "an inflation calculator". It is really a beautiful thing.

I enter a dollar amount and then I type in two different years... press the 'calculate' button and voila... I get a comparison of what a dollar in one of those years is worth in the other year.

So, I did some calculations and "35" 1934 U.S. dollars is equivalent to 499.60 of today's dollars. And guess what the spot price for gold was today? $438.50!

Yeeicks!!!! Gold was valued higher, in real dollar terms, back in 1934 than it is today.

Let's look at silver prices: the 50 cent per ounce silver of 1934 is, in real dollars equivalent to 7.14 of today's dollars.

And today's spot price for silver was: $7.29 in year 2005 currency.

That's pretty darn close. In fact, it's nearly right on because over the last couple of weeks the spot price for silver actually hit the $7.29 mark several times.

Well, let's try something else with this inflation calculator.

Let's see...back in 1980 silver shot up to $50 per ounce. That's equivalent, in real dollars, to 126.98 '2005 U.S. dollars'. So,

That means, that if silver were to spike up to the same extent that it did back in the 1980s we'd be looking at silver that would sell for over 125 of today's bucks.

Very interesting...