One of the greatest problems of our time is the accurate measurement of real economic & investment variables. I have invariably found that investors are reliant upon real measures, calculated using the inaccurate CPI index. In my view, these real variables are erroneous and lead to misguided decisions by investors. So are gold ratios a solution?
The gold price is a measure of price inflation that has stood the test of time. It is a simple and transparent measure of price inflation. Gold ratios can be created by rebasing nominal asset prices in gold to produce a real rate of return that is not corrupted by the CPI measure.
Gold ratios are incredibly versatile statistics that you can use to gauge the real return of ANY asset. The GDP in gold ratio provides us with an insight into the economic cycle, above and beyond the smoothed real GDP, calculated with the CPI measure. This ultimately has a huge impact on investment decisions. Asset markets themselves can also be rebased in gold. Particularly popular gold ratios are the Dow gold ratio and the silver gold ratio.
By re-basing the S&P 500 in gold, we see the true magnitude of the equity cycle over the last 80 years. Although the dollar based series is volatile, the true size of swings in the S&P 500 has been masked by movements in the dollar. The current equity bear market began in 2000 and still [...]
There is perhaps no more effective means of valuing silver than through the silver gold ratio. Historically, both gold and silver have been used as money and so expressing one by means of the other is a powerful valuation technique. Both silver and platinum are looking CHEAP relative to gold at the moment. Not only [...]
By using gold as a currency, we can value the price of crude oil price using the oil gold ratio. This ratio is independent of the US dollar and the unreliable CPI measure of inflation. The oil gold ratio suggests oil is evenly priced at the moment. Does the oil gold ratio support the arguments [...]
By rebasing US GDP in gold rather than the CPI, the true extent of the economic cycle is revealed, from expansion to depression. Using gold to rebase nominal variables avoids the distortions and smoothing effect brought about by the CPI. The gold rebased GDP reveals the depths of our current economic malaise and past economic cycles show how we may recover from it.