VIEWPOINTS OF A COMMODITY TRADER

 

I thought I would wrap up my observations on the current gold market, by sharing a final look at gold in terms of some other asset classes.  

 

How many ounces of gold does it take to buy the Dow Jones Industrial Average? How many ounces of gold does it take to buy the median priced home in your state? After all, these are the important assets for most Americans.

Steve Sjuggerud, in a recent post on the Daily Wealth Letter answered these questions. He said, “From a peak of nearly 42 ounces of gold to buy a share of the DJIA earlier this decade, we made it down to a low of almost seven ounces in March 2009. That is a decline in the “value” of the DJIA of 83%.”

 

So, I guess even though we think we are getting somewhere in the “buy and hold” world of stocks, it may be an illusion. Even when you look at the spectacular 2009 rally, it is dramatically different in terms of gold. One year ago your investment in the Dow Jones could buy 12 ounces of gold. Now, after advancing over 18% from one year ago, you can only afford 9 ounces of gold.

 

So, are we really building wealth in the U. S stock market in terms of a real standard of value? Well, as the title implies, it certainly is food for thought.

 

Unfortunately, this is true of real estate as well, the most important asset for the average American.   

 

Steve points out where “A few years ago (summer of 2005), you would have needed 550 ounces of gold to buy an average house. Today, you need more like 150 ounces of gold. That is a 73% decline in the “value” of real estate. You’ll hear on the evening news that home prices are down by, say, one-third nationwide. But on TV, they never account for the destruction in the dollar. In terms of gold, home prices are down by more than 70%”

 

In other words the proceeds from your house could buy you 550 ounces of gold in 2005, now you can buy 150 ounces.

Here is another one of those “pictures are worth a thousand words” examples.

 

 

 

 

 

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Filed under: Food For Thought by Charles Maley