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Six Consecutive Years
The numbers for 2006 are in, and gold has climbed again, its sixth annual increase in a row. Gold gained 22.8% for the year. Silver also had a banner year, climbing a stunning 45.3%. The table below shows the annual appreciation for both precious metals since this bull market began.
Gold has appreciated 15.5% per annum on average, while silver's annual appreciation during this period is 19.7%. As good as these results are, I don't claim in the above table that the increase in the gold price over recent years is a "gain". In other words, gold is not rising; instead, the dollar is falling.
This distinction may not be immediately obvious because we measure prices in terms of dollars instead of gold. Consequently, gold 'seems' to be going up, while things of all sorts seem to be getting more expensive, i.e., what we call inflation. But inflation is really the debasement - the loss of purchasing power - of the dollar. To show this debasement, I have included in the above table the price of crude oil in terms of dollars as well as goldgrams, which are grams of gold and the unit of account of GoldMoney.
When viewed in terms of gold, we get a different picture of the price of crude oil. One barrel presently costs 2.989gg, which is an inconsequential 0.5% difference from its2.874gg average price over the past seven years. This consistency in gold's purchasing power applies generally to all goods. It does not necessarily apply however, to services, which primarily are a function of labor costs.
Unfortunately, salaries rarely keep up with the real rate of inflation. So people living in countries with debased currencies become poorer by international standards. Today's most extreme example of this point is the ongoing impoverishment of Zimbabwe, once one of Africa's richest countries. The general welfare of people suffers when the currency of the country in which they are living is debased by government mismanagement. There is a marked deterioration of living standards, and this deterioration worsens as the currency debasement gathers speed.
So to re-emphasize this important point, do not be misled by gold's rising exchange rate against the dollar. The dollar is falling; there is no "gain" from gold. Gold is not an investment; it is money.
Gold is not an investment because it is not a wealth producing franchise like a company. In other words, gold is wealth, but it is not wealth-producing unless you invest it.
You cannot purchase any more crude oil with a gram of gold than you could seven years ago. Gold has not generated any 'return' over this period. So what many people call gold's 'rate of return' is in reality, the rate of depreciation of the US dollar.
[finster, i thought of you when i read this piece.- jk]
Six Consecutive Years
The numbers for 2006 are in, and gold has climbed again, its sixth annual increase in a row. Gold gained 22.8% for the year. Silver also had a banner year, climbing a stunning 45.3%. The table below shows the annual appreciation for both precious metals since this bull market began.
| Year-End Gold Price | % Appreciation | Year-End Silver Price | % Appreciation | Year-End Crude Oil Price (USD) | Year-End Crude Oil Price (gg) | |
| Dec-00 | $272.00 | $ 4.585 | $28.46 | 3.251 | ||
| Dec-01 | $278.70 | 2.5% | $4.579 | -0.1% | $19.33 | 2.160 |
| Dec-02 | $347.60 | 24.7% | $4.801 | 4.85% | $29.42 | 2.637 |
| Dec-03 | $415.70 | 19.6% | $5.953 | 24.0% | $32.15 | 2.397 |
| Dec-04 | $437.50 | 5.2% | $6.807 | 14.3% | $43.33 | 3.076 |
| Dec-05 | $517.10 | 18.2% | $8.820 | 29.6% | $59.43 | 3.606 |
| Dec-06 | $644.70 | 22.8% | $12.818 | 45.3% | $61.05 | 2.989 |
| Average | 15.5% | 19.7% | 2.874 | |||
Gold has appreciated 15.5% per annum on average, while silver's annual appreciation during this period is 19.7%. As good as these results are, I don't claim in the above table that the increase in the gold price over recent years is a "gain". In other words, gold is not rising; instead, the dollar is falling.
This distinction may not be immediately obvious because we measure prices in terms of dollars instead of gold. Consequently, gold 'seems' to be going up, while things of all sorts seem to be getting more expensive, i.e., what we call inflation. But inflation is really the debasement - the loss of purchasing power - of the dollar. To show this debasement, I have included in the above table the price of crude oil in terms of dollars as well as goldgrams, which are grams of gold and the unit of account of GoldMoney.
When viewed in terms of gold, we get a different picture of the price of crude oil. One barrel presently costs 2.989gg, which is an inconsequential 0.5% difference from its2.874gg average price over the past seven years. This consistency in gold's purchasing power applies generally to all goods. It does not necessarily apply however, to services, which primarily are a function of labor costs.
Unfortunately, salaries rarely keep up with the real rate of inflation. So people living in countries with debased currencies become poorer by international standards. Today's most extreme example of this point is the ongoing impoverishment of Zimbabwe, once one of Africa's richest countries. The general welfare of people suffers when the currency of the country in which they are living is debased by government mismanagement. There is a marked deterioration of living standards, and this deterioration worsens as the currency debasement gathers speed.
So to re-emphasize this important point, do not be misled by gold's rising exchange rate against the dollar. The dollar is falling; there is no "gain" from gold. Gold is not an investment; it is money.
Gold is not an investment because it is not a wealth producing franchise like a company. In other words, gold is wealth, but it is not wealth-producing unless you invest it.
You cannot purchase any more crude oil with a gram of gold than you could seven years ago. Gold has not generated any 'return' over this period. So what many people call gold's 'rate of return' is in reality, the rate of depreciation of the US dollar.
[finster, i thought of you when i read this piece.- jk]
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