What is gold’s true value in 2020 when compared to the U.S. dollar?

  • From 1792 to 1932 the U.S. dollar was pegged to gold.
  • For 140 years gold was stable at about $20 an ounce.
  • Executive order 6102 made gold owenrship illegal in 1933
  • In 1974 gold was once again a legal commodity.
  • The median annual salary in 2020 will buy 5 more ounces of gold than in 1932.

Gold is the first commodity many investor’s transition too in modern periods of economic turmoil. This finanacial waltz is akin to assets being shuffled in and out of a deck depending on the sentiment of the moment. But buying physical gold has not always been legal in the United States.

How has financial policy affected the cost of gold in dollars over the past two century’s? Let’s have a look at the good, the bad and the ugly of the pair’s complicated history.

1792-1932: Ratio $20 for 1 ounce

In 1792 the first U.S. Secretary of Treasury Alexander Hamilton set the price of the dollar at 1/20 an ounce of gold. This set the initial gold standard in the United States. Over the next 140 years the price of gold remained remarkable steady. and Up until 1933 the price remained $20 per ounce.

1933-1974: Ratio $35 for 1 ounce

On April 5, 1933 President Franklin D Roosevelt signed executive order 6102. This order essentially outlawed the owenrship of gold in America. The effects of this act are debatable but the reason given at the time was to stop the outflow of gold from banks and stimulate the economy.

From 1934 to 1970 America tried to keep the price of gold at around $35 per ounce. If the cost started to rise to much the treasury would sell gold, the price dropped and they bought. This balance was kept until 1970 when the price of gold began to rise substantially versus the dollar.

2020: Ratio $1735 for 1 ounce

On December 31, 1974 President Gerald Ford repealed executive order 6102. The order stood for almost 41 years. During that time watching the price of gold was less entertaining than watching paint dry. Since 1974 the cost of an ounce of gold has grown exponentially. The chart below beautifully displays what happened when the free market is allowed to participate in the price discovery of gold.

*The average cost of an ounce of gold in U.S. dollars since 1792.

Gold wins?

If the data stopped there then yes gold would win hands down. But let’s complete this investigation by comparing the price of gold to median income over the years. By dividing the cost of gold by average income from various years we can see what the actual cost of gold is.

*Chart displaying how many ounces of gold the median income will purchase from 1932 until today.

The above chart is a compelling piece of data. As we can see that since gold has decoupled from the dollar the value vs the dollar has actually fluctuated like all commodities in a capitalistic society tend to do. If the average person took a years salary and bought gold he would recieve about 5 more ounces of gold today than he would have in 1932.

Conclusion

When accounting for wage inflation the dollar is stronger today versus gold than it was in 1932. However, gold has been an excellent investment and has more than held it’s own since 1974 when compared to other commodities.

*All historic price data for gold in this article was aquired from onlygold.com. All income data used in the above charts is from infoplease.com

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