The Impressive Long Term Purchasing Power of Gold & Silver

We saw a great meme on WallStreetSilver which sparked our essay idea for this week, the meme- The True Value of Gold and Silver compared how many ounces of silver it would take to purchase a corvette in 1950 compared to today – the answer was less!

This meme is a great example of the true value of silver over time. Below we reproduce the meme, but with the modification of the starting year of 1971 – which as we discussed in previous weeks is the year that then-President Nixon closed the Gold Exchange Window (see the post on August 19 “The Changing Role of Gold”).

This is the year that the gold price was taken off the US$35 per ounce fix. As the meme below shows, the cost of a new Corvette in 1971 was $5,496. And that cost has increased to over US$67,000 in 2020 – an increase of 1235%.

However, if we ‘price’ the Corvette in terms of ounces of gold, the Corvette in 1971 would cost 135 ounces of gold compared to the cost of a Corvette in 2020 being only 38 ounces of gold!

The True Value of Gold and Silver

And when ‘priced’ in terms of ounces of silver, the Corvette in 1971 would have cost 3,572 ounces compared to only 3,308 ounces of silver needed to purchase a Corvette in 2020.   

Recreated from the idea on Reddit’s WallStreetSilver

Digging deeper – below we chart the cost of a Corvette for all the years from 1971 to 2020, in the same three measures as above. In US dollar terms, ounces of gold, and ounces of silver.  

Cost of Corvette in the US Dollars, Gold and Silver Chart

What we can see is that the cost of a Corvette in US dollar terms has risen somewhat steady over the last 50 years.

The Long Term Purchasing Power of Gold and Silver

However, since gold and silver price markets do not move in a straight line. The cost of a Corvette in terms of ounces of gold and ounces of silver has changed significantly, the cost of a Corvette was as low as 21 ounces of gold and 631 ounces of silver in 1980. And the cost of Corvette was as high as 149 ounces of gold and 9259 ounces of silver in 2001.

So, although yes, it is true that the number of ounces of gold, and of silver, it takes to purchase a Corvette has gone through cycles over the last 50 years. The point we would like to close with is that, although this purchasing power of gold and silver is disrupted in the short and even medium-term – the long-term (50 years) purchasing power of gold and silver being able to purchase goods and services has remained impressively constant.

So this just shows evidence for how long the elastic relationship between paper money and precious metals can stretch…not for 50 years, but yes it can for 10 years and even 20 years.

GOLD PRICES (USD, GBP & EUR – AM/ PM LBMA Fix)

25-08-2021 1794.70 1788.70 1307.80 1303.60 1527.29 1521.83
24-08-2021 1802.95 1808.45 1314.71 1318.00 1536.29 1538.63
23-08-2021 1786.90 1802.00 1308.19 1315.82 1524.23 1536.57
20-08-2021 1782.95 1779.05 1309.58 1305.47 1527.10 1523.58
19-08-2021 1788.20 1782.05 1307.89 1301.79 1530.16 1523.30
18-08-2021 1788.10 1783.45 1300.13 1295.32 1525.61 1522.00
17-08-2021 1794.05 1789.45 1299.61 1300.57 1524.22 1524.61
16-08-2021 1775.75 1786.35 1281.91 1291.53 1507.61 1517.15
13-08-2021 1757.65 1773.85 1273.59 1281.07 1496.64 1506.35
12-08-2021 1755.50 1747.40 1266.24 1262.85 1494.81 1489.66

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