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Valuation of Financial Instruments Based on Gold vs. USD

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Valuation of Financial Instruments Based on Gold vs. USD

You will find below a few eye-opening charts of relevance concerning the state of the US economy and finances in February 2017. These charts show the valuation of assets in gold, versus inflated US dollar.

Figure 13.19

Figure 13.19 show the price of DJ-30 based on gold. In gold, the price of DJ-30 is well below its all-time high of 2000. In February 2017, it was worth some 500 grams or 16 ounces of gold. The two lowest prices of DJIA in gold were during the Great Depression and in 1980. Today, its price is approximately 30% of the high of 2000 and 50% of the high of 1966.

The impending crisis should bring the price of DJIA down to at least the level of two previous historical lows of 70 grams of gold or some 2.3 ounces per one share of DJIA. You obtain the price of DJIA in gold when you divide the price of DJIA in dollar, by the price of an ounce of gold, in dollar. Consequently, this implies that the price of gold would go higher and the price of DJIA, lower, to meet the ratio of 2.3. This ratio may even go lower than 2.3 because of the recent easy money policies of central banks. Assuming that the price of gold remains the same during the impending crash, and then the price of DJIA in dollar would go down to some 2990 (1300 x 2.3). However, the price of gold would most likely first go down due to the effect of deflation, but later on, would rebound, while the price of DJIA would continue its plunge.

Figure 13.20

Figure 13.20 shows the historical evolution of the price of the dollar in gold. It was quite stable for centuries until the mid-1960s when the US government unilaterally abandoned the dollar backing by gold, with a fixed rate, in US dollar. The value of the dollar in gold has since plummeted continuously. In 2014, the value of the US dollar in gold was approximately equivalent to 1.5 cents of the dollar of 1930 (20.40/1300). Based on the conversion rate for today’s dollar to 2.69 cents of 1962, the DJIA price would have been US$ 457. Well, on June 25, 1962, just four years before the top of the Cycle degree wave 3 of 1966, the price of DJIA was at US$ 524.60, not that far away. This is what the price of DJIA would have been today if the US government had kept the dollar backed by gold and with a rate of US$ 35 per ounce of gold. However, the unit of US dollar and the DJIA would have had much higher buying power today, than in 1962. Inflation gives an illusion of growth, called nominal growth. There is no gain, in term of  buying power of dollar, rather losses. The government has transferred to the Fed (taxed) the savings of savers by some 97.31% through the policy of printing money and the artificial creation of inflation.

Figure 13.21 shows the price evolution of the dollar in gold. It predicts a continuous decrease. The price decrease is not because of the appreciation of the price of gold. It simply means that the dollar’s buying power will continue its downfall due to inflation until it becomes nearly worthless starting from 2025 but latest by 2030. This is in 8 to 13 years time. However, the chart does not take into account the consequences of the impending market crash that is supposed to accelerate this process. Therefore, substantial devaluation of the dollar may start to occur as early as 2017.

Figure 13.21

Figure 13.22

Figure 13.22 shows the continuous decline of DJIA in gold since 2002, while, in dollar terms, it makes new all-time highs every few months.

Figure 13.23

Figure 13.23 shows the declining price of the dollar in gold since 1997. Again, the loss of the buying power of the dollar is due to the artificially created inflation.

Figure 13.24

Figure 13.24 shows the US GDP fluctuation in gold since 1930. The lowest GDP in gold was in 1933, then in 1980. The highest were in 1970 and 2000. In terms of gold, the US GDP now represents only some 25% of its peak of 2000. In other words, the US GDP in gold has now lost 75% of its value since then.

Figure 12.25 shows the price evolution of homes in dollar and gold.

Figure 12.25

Figure 12.26 shows the US household net worth in gold. It seems that the US household net worth is now in the order of some 30% of 2000. In 2017, It is approximately the same as in the early 1970s.

Figure 12.26

Figure 13.27 shows the evolution of gasoline price in gold since 1995. Its price is currently nearly the same as in 1995, some twenty years ago. It demonstrates that the politicians’ claim saying “higher inflation rates are caused by the higher price of oil and energy,” is a fallacy. The higher price of commodities in general and the oil and energy, in particular, are the effect and consequence of the central banker's Money Printing policy, certainly not the cause of it. Here it looks like we are receiving confusing propaganda as to what is the cause and what, the effect. When the central bankers print new money, this creates inflation and depreciates the purchasing power of the dollar. Consequently, the oil-producing countries are forced to ask for higher prices to keep further an equivalent level of buying power, in dollar.

Figure 13.27

Figure 13.28 shows the hourly production wage in gold. It is at its historical low since 1965 or nearly the same as in early 1980, some 35 years ago.

Figure 13.28

Figure 13.29 shows the price of S&P-500 in gold. In principle, the remarks expressed concerning the DJIA are applicable here too.

Figure 13.29

Figure 13.30 shows the price of silver in gold. It also shows that the silver price in gold is currently close to its historic lows.

Figures 13.30

Figure 13.31 shows the federal minimum wages in gold. It is as low as in 1980 and 1940.

Figure 13.31

Figure 13.32 shows the US per capita disposable income in gold. It is close to the historical lows of the 1980s.

Figure 13.32

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