…A paper currency doesn’t measure anything. It merely has an arbitrary value placed upon it by the population using it. It’s not backed by anything and it can fail at any time…A more accurate measurement would be to measure fiat currencies in gold. [That being the case,] what will the price of gold be in 5 years’ time?
The comments above and below are excerpts from an article by BullionStar.com which has been edited ([ ]) and abridged (…) to provide a faster and easier read.
If we look at the U.S. Dollar measured in gold, we can see that it has utterly failed in retaining its value, as its value has plunged about 98% over a mere 50 years. It cannot therefore be seen as a store of value.
Source: Gold Price Charts, BullionStar
Extrapolating into a likely future, a future in which you will need a stack of USD 100 bills to buy a carton of milk and a couple of eggs, underlines that the US Dollar gold price is meaningless as an indicator of value. When discussing the price of gold, the key is to recognise that gold retains its purchasing power over time. If a 1 troy oz gold coin can buy an exclusive men’s suit today at USD 1,300 and the same 1 troy oz gold coin buys an exclusive men’s suit at USD 2,600 tomorrow, this only means that gold is still reflecting USD 1,300 in today’s purchasing power and hasn’t gained in value. It’s the U.S. Dollar that has depreciated vis-à-vis gold. Similarly, if the gold price goes to USD 650 and it can still buy the same suit, then it’s merely the U.S. Dollar that has appreciated vis-à-vis gold.
…Currencies are not a reliable measuring stick. Just imagine if the centimeter, meter, yard or foot were to fluctuate in length. 100 cm 100 years ago has become 2 cm today. Think about it. This is what has happened with our currencies.
What will the price of gold be in 5 years’ time?
Gold is savings – Gold is wealth, and as such, the price denominated in something as inferior as the US Dollar isn’t very important.
For the sake of reflection, we can play with the idea of what the price of gold would have to be if the US Dollar were to go on a fully-backed gold standard.
The US gold reserve officially stands at 8,133.5 tons although it has never been properly independently audited. At USD 1,300/oz, this would be equivalent to 340 billion dollars. The total US money supply is about 17,000 billion dollars. For each “gold backed” dollar today, there are therefore 49 unbacked dollars.
The gold price would thus have to increase 50-fold to USD 65,000 by 16 June 2021 if the U.S. Dollar were to be fully gold-backed.