Thursday, March 18, 2010

And... Peter Schiff On Moody's US Ratings

The stock market is up because our money is inflating (been to the supermarket lately?) and so is the value of stocks.

You have to look at the value of the stock market in terms of gold.

Check out this website.

The Dow/Gold Ratio chart shows the ratio of the price of the Dow to the price of gold. Another way to look at it is the number of ounces of gold it takes to buy one share of the Dow. For example, with the Dow at 10,000 and gold at 500, it requires 20 ounces of gold to buy one share of the Dow, so the ratio is 20. The reason for using gold is that gold is the most unbiased form of money in existence. Fake government paper money comes and goes, but gold has been money for thousands of years. It is the ultimate store of wealth.

1 comment:

David Aron said...

To beat the gold skeptics to the chase...

It is true that the supply of gold continues to grow as new gold is mined and produced. It is also true that gold as a commodity is no longer used as money.

However, Judy's point that the price of gold is a benchmark for the true price of goods and services (and stocks in her example), is correct. The amount of new gold is small, and gold is unaffected by seasonal factors like weather. And remember, an ounce of gold stays an ounce of gold, regardless of how much fiat money is printed.

Thus, the price of the gold (a commodity) reveals the true value of our fiat paper (not a commodity). Since we price our goods in services today in fiat paper (and computer bytes) and not in gold, prices will increase as the supply of the money commodity increases. That is inflation. Thus, the relatively stable commodity of gold provides us with a relatively accurate estimate of the true value of our money. One might also be able to price the stock market in other commodities, such as bushels of wheat, gallons of milk, barrels of oil, etc... and see the same trend of a devaluing dollar (albeit distorted by the supply changes of those commodities).

Need more proof that gold retains it's value? In Ancient Rome, an ounce of gold could buy you a toga, a pair of sandals, and a belt. At $1,100 an ounce today, an ounce of gold can buy you a nice suit (with dress shirt and tie), a leather belt and a pair of shoes.