How to Buy Gold for $252.00 Per Ounce!
Fellow Goldbugs, Precious Metals aficionados, and Silver savers, is the title of this article too good to be true? Well perhaps, but in a very real sense it is probably the most truthful statement you will read about the recent 24 year high in the gold market. You see even the main stream financial press has gotten into the act and began telling the unwashed masses that gold is hitting 24-year highs. However, for those seeking the truth, it may indeed be stranger than fiction!
If we use the official numbers of inflation as recorded by the Federal Reserve System, we might just find out how high the recent high in gold is in real terms. Please see www.minneapolisfed.org/Research/data/us/calc/index.cfm
The above link is from the Federal Reserve Bank of Minneapolis and may be one you would like to bookmark for reference. Since almost everyone is jumping up and down at gold's recent "24" year high, we took a look to see where we really are when looking back nearly a quarter century.
The Fed Inflation calculator is rather simple to use, we merely plugged in the recent high in gold using the U.S. "dollar" at 540 for this year 2005, and then asked what that was in 1981 terms? Guess what? Five hundred and forty dollar gold was two hundred and fifty two dollars in 1981. See calculation below…
Directions: Enter years as 4 digits (i.e. 1913) through 2005. Enter dollar amount without commas or $ sign in box on first line. Click Calculate button to compute dollar amount shown on second line.
If in (year) 2005
I bought goods or services for $540,
Then in (year) 1981
The same goods or services would cost $252.24.
So, we can look at this another way, if gold were really and truthfully hitting a 24 year high in real terms it would have to be over $1000 in U.S. "dollars." This is the crux of the issue and the one principal that once understood becomes the strongest point for gold ownership.
Over the years we have gotten many inquires about confiscation of precious metals, and yet it seems no asks the more important question of confiscation of purchasing power. Buying gold today is just like buying gold in 1981 at $252 per ounce, or if you had paid the nominal price of 540 "dollars" in 1981 and sold that gold at that level on December 12, 2005 you would have gotten your money back, but the purchasing power is now roughly half or what it was twenty four years previously. Remember this is using the Federal Reserves numbers, which in our view are a bit skewed in favor of the Fed.
Your "money" has been under constant confiscation for the past twenty four years and in reality for a much longer time than that, (the founding of the Fed) and yet many people are reluctant to purchase gold for fear it might be taken from them, yet their "money" is dissolving year after year and they hardly stop to think about it, let alone take any action!
For gold to have really done its job and maintained purchasing power it would need to be over one-thousand dollars today and that would be maintaining purchasing power not yielding any gains. Now that is looking at a twenty-four year hold.
Certainly real profits have been made since gold bottomed most recently at $252 per ounce a few years ago. Since that time gold has more than doubled and there have been some good real gains in both the physical metal and the paper precious metals markets (mining equities, futures, options, and derivatives).
Because we have just entered the second phase of a secular bull market in the precious metals, there is plenty of time and gold will hit par with the 1981 price and after that we think gold and silver will go well beyond there previous highs not only in nominal terms but in real terms as well. See our previous work engineering the price of gold.
Take a look at the chart above and note the 1981 high shown on this chart at roughly 1,000 inflation adjusted, then note how much further gold has to go to the upside for gold to graphically (real terms) be at a 24 year high in inflation adjusted terms.
One reason the secular bull market will continue is that a few more people worldwide will discover the simple truth that 500 yesterday does not equal 500 today. The ongoing destruction of all currencies is being evidenced by gold showing strength in almost all currencies. Yes, be prepared understand the basic principles of sound money, real profit, and the politics of illusion and you will earned the conviction required to think, study and act on fact rather than emotion.
David Morgan (Silver-Investor.com) is a widely recognized analyst in the precious metals industry; he consults for hedge funds, high net-worth investors, mining companies, depositories and bullion dealers. He is the publisher of The Morgan Report on precious metals, the author of Get the Skinny on Silver Investing, and a featured speaker at investment conferences in North America, Europe and Asia. You can receive a free 30 day trial subscription here http://www.silver-investor.com/joinfreelist.html