Purchasing power of gold over years

Purchasing power of gold over years


Everyone knows the value of gold. But how relevant is it now? This can be shown by such an index as the purchasing power of gold. Let's take a look at what it is and how such an index has changed over the years.

First of all, what is purchasing power? This is the ratio of supply and demand for a certain period of time. So, if modern investment instruments are quite volatile, and this applies even to modern types of currencies, gold seems monumental, stable and at the same time - holding the same price through the ages. However, it is not true at all, for gold is one of the softest metals, and not only in the direct, but also in the figurative sense.

How does the purchasing power of gold change over time?

Purchasing power is often assessed in three dimensions:

  • In the short term;
  • In the medium term;
  • Long term.

So, how does gold's buying power change over short periods of time? Take, for example, a time span of a week. During this week the price of gold may have increased by 5%, but if during the same period the price of basic goods and services in the country has remained stable, we are talking about a short-term increase in the purchasing power of gold, because for the same amount of metal before its price increase and after it you can buy a different amount of identical goods, which have remained stable in value. If we take into account the fact that over the last 100 years there has not been any global "slump" in gold price, then at each short term period the purchasing power of gold is either stable or increasing.

If we take medium-term calculations of purchasing power index, it is easier to compare gold with any currency. For example, the perfectly stable English pound sterling retains approximately the same value each month, but falls slightly in value overall as time passes. Gold has more fluctuations in price, but its final value remains about the same, meaning that gold remains stable in the medium term.

If you take a long-term perspective, gold remains stable and gradually only increases its purchasing power. How has it shown up through the years? Let's look more closely below.

Buying power of gold over the years

Until the beginning of the twentieth century, the value of goods and services remained basically the same. Moreover, at that time gold was the security of any currency, and consequently, its purchasing power was stable. As you can see in the chart above, gold was at its highest value until the Age of Great Geographical Discoveries, and then it lost some of its position due to the discovery of new deposits. But then, up to 1914, the price stability was restored again.

When many states abandoned the gold standard, in other words, began the practice of using currency without reference to the price of gold, the situation began to change. Paper money became more volatile, it was subject to inflation, collapse in times of wars and crises, and the prices of goods and services depended directly on the paper currency and its current price. The situation with gold was the best for its owners: the more inflation was expressed, the higher was the price of gold, the greater was its purchasing power.

In 2020, the world has moved to a new model of relations - the so-called VUCA (volatility, uncertainty, complexity, ambiguity), which means that it became the most unstable, volatile, complex. And only gold has retained its position, strengthened its status as the most stable asset and keeps growing in value. Financiers predict that chances are very high for states to switch back to the gold standard in the current environment. Therefore, owning gold today is doubly profitable. Don't wait for your competitors to get ahead by providing your own gold reserve. Start increasing your wealth with gold together with Golden Way.