Gold Is the Best Standard of Value

This article was written by Joel Bauman, SchiffGold Senior Precious Metals Specialist. Any views expressed are his own and do not necessarily reflect the views of Peter Schiff or SchiffGold.

The current debt-based fiat monetary system creates an illusion of wealth expansion.

For example look at this 100-year price chart of the Dow Jones Industrial Average.

The Dow Jones chart looks a lot like a Bitcoin graph with its exponential growth. No wonder so many financial advisors say the best thing investors can do is simply buy and hold.

But one has to wonder, is this chart impressive simply because US equities really have been doing so well? Or is it because the denominator, the dollar, fails to measure wealth over time? Or both?

Let’s look at the same time period using gold as the measure of value instead of using dollars.

Looking at this chart, the classic ‘buy and hold’ advice doesn’t seem so great. You can see distinguishable highs and lows on this graph.

Any potential stock buyer looking to time their purchase may have benefited from the Dow/gold chart. For example, in 2011 it was easy to see stocks were at their relative lows in terms of gold. However, the original Dow chart priced in dollars shows the index near all-time highs.

You can see a similar trend in the US real estate market.

It’s interesting to note how the US real estate market was in a dollar bubble during the early 2000s until about 2006 when prices softened. In gold terms, there wasn’t really a bubble, the market was relatively flat during the early 2000s with a sharp decline beginning in 2005-06.

All of this demonstrates an important truth: Investors should care about maximizing their wealth and it’s difficult to measure wealth with a poor fiat standard like the dollar.

Wise words from the book of Proverbs notes the importance of an honest standard.

A false balance is an abomination to the Lord: but a just weight is his delight.” Proverbs 11:1

Even though gold isn’t generally recognized as money in the modern economy, this doesn’t mean individuals can’t have a personal gold standard. Before making any serious financial purchases or sales, I recommend checking an asset’s gold price history. This can be done through websites such as pricedingold.com. There are also a number of charting tools that allow users to create historical price graphs denominated in gold.

With gold, the real value of assets may be seen and investments can be measured by their true productivity and not their illusionary growth in fiat dollars. This truth cannot be understated.

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