A advertisement on the radio stated that gold has gone up 112% in the last twenty five years. They state that gold is a good hedge against inflation. Since everyone is talking about gold and crude oil prices, let’s compare gold and crude oil prices over the last 25 years.
1980 to 1985: Lets forget that on January 21, 1980, gold closed at $850.00 per ounce. The average for 1980 was still only $675.31 and the low was $559.50. The five year average for 1980 to 1985 was $495.46. Adjusted for 2005 dollars, the average price is $879.27. The average low for the same time was $477.35. Adjusted for 2005 dollars, the average low was $847.13.
Crude oil on the open market for the same time period was trading at an average price of $37.98. Adjusted for 2005 dollars, the price is $78.63.
In the radio commercial, the firm states that the value of one ounce of gold should be at least 15 times the value of a barrel of crude oil. The average price of crude for 1980 was $37.42 times 15 or a value for gold of $561.30. Gold average for 1980 was 675.31. 16.88% off, not bad, close enough to say, ok.
1986 to 1990: The average gold price for these years was $333.06. Adjusted for 2005 dollars, the average price of gold was $495.37.
Crude oil on the open market for the same time period was trading at $17.72. Adjusted for 2005 dollars, the price was $29.97 X 15 is $449.55.
1991 to 1995: The average price of gold between 1991 and 1995 was $369.15. Again, adjusted for 2005 dollars, gold had an average price of $448.08.
Crude oil on the open market for the same time was trading at $17.72. Adjusted for 2005 dollars, the price was $29.97 times 15 or $449.55. So here we can see that there was little change in the price of crude from 1986 to 1995. While gold value went down, but it is right at 15 times the value of a barrel of crude oil.
Lets look at gold for the 15 years from 1980 to 1996. In 2005 adjusted dollars, gold went from $879.27 to $448.08. This is a decrease in 2005 value of $431.10 or a decrease of 49.03%.
During this same time period, crude oil went from $78.63 to $29.97. This is a decrease in value of $48.66 or 61.88%.
1996 to 2000: The average price of gold between 1996 and 2000 was $300.83. Again, adjusted for 2005 dollars, gold had an average price of $334.08.
Crude oil on the open market for the same time was trading at $18.99. Adjusted for 2005 dollars, the price was $22.74 times 15 or $341.10.
2000 to 2005: The average price of gold between 2000 and 2005 was $393.48. Adjusted for 2005 dollars, the price was $413.40. While crude oil on the open market was $32.24 with a 2005 adjusted dollar of $33.94.
Now lets look at the facts. Between 1980 and 1985, the value of gold was $495.46 while the average value at the end 2005 was $393.48. It seams to me that is a decrease of $101.98 or a 20.58% decrease in value.
Crude oil went from a 1980 to 1985 average price of $37.98 while the average value at the end of 2005 was $32.24 or a decrease of 15.11%.
The 2005 prices do not take into consideration the value in 2005 dollars, but comparing just the gold value in 2005 dollars is a horse of a different color. The value in 2005 dollars in the average price of gold between 1980 and 1985 was $879.27. The 2005 dollar value would give you a decrease of $485.79 or a decrease of 55.25%.
Now, lets drop 1980 from the mix and compare January 5, 1981 to ending value on December 30, 2005. January 5, 1981, gold closed at $597.50 and closed on December 30, 2005 at $513.00. Well, lets try starting with January 4, 1982. Gold closed at $395.00 and closed on December 30, 2005 with a value of $513.00. Now here we have an increase in value of $118 or a 23% increase.
Let’s try the closing price of gold on January 5, 1983. Gold closed at $449.50 and closed on December 29, 2005 with a value of $513.00. This gives us an increase in value of $63.50 or a 12.38 % increase.
Why don’t we jump ahead and compare years.
Year |
January |
December |
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+ or - |
| 2001 | ||||
| 2002 | ||||
| 2003 | ||||
| 2004 | ||||
| 2005 |
| Year 2006 |
Month |
Month |
+ or - |
+ or - |
| January | ||||
| February | ||||
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| April | ||||
| May |
Looks like a steady increase starting in January 2002 until April 2006. Lets compare these results. January 2, 2002 gold closed at $278.35 and closed May 30, 2006 at $660.50. This is an increase of $382.15 or a 57.86% increase. Still not a 112% increase in value.
Another dealer states that gold is up 60% just this year. Gold started the year at $530 and ended in Aprial at $644, a 17.7% increase. If we go until the end of May, gold is up 19.75%. Just where is the 60% increase.
Am I saying that gold is a bad investment or not a hedge against inflation....NO, I am not. I am just saying that before you believe percentages or increases, get the facts. Get the facts and do your own fact finding.
If you are comparing todays value of gold, with the value of gold in 1980, you need to either use the dollar value in 1980 for both or the 2005 dollar value.
Todays marketplace can not be compared to 1980. China, India and Russia are playing a big part in the prices in the United States today. In 1980, we were not competing with other major countries for oil. As the demand for oil increase so does the price. Could not the same be said for gold bullion.
American gold bullion coins are in demand. Many people around the world have increased dollars to spend and our gold is respected and trusted around the world. As interest and demand increases, so will the price.
2006 opened the door on a new era for investments. Just look at the price of crude oil and gold in 2006. The day of buying gold bullion and putting it away is over. What determines the value of your gold bullion is the price the day you purchase it and the price on the day you sell. And they call this rocket science!
Find a dealer you trust and work closely with them. The little he makes on gold bullion may be your best investment.
Have a question, need an answer, drop me a line or visit us at a coin show. Frank M. Zapushek PO Box 1993, Bloomington, IL. 61702. No charge for authentication or questions. Buying collections and estates. Visit our informative web page at http://www.baker coins.net
