Wednesday, September 14, 2011

Update On Gold's Relative Value

I believe Gold will enter a mania sometime this decade and once again be considered "expensive" to purchase.  The question is how do you know when that point has arrived?

A simple tool is to look at the price of gold relative to the money supply.  In 1980 the price of gold rose so rapidly that is could fully back the entire money supply in existence, and for a few months it was worth more than the paper money supply.

At this point gold could have been considered "expensive" and it was time to sell.

So where are we in relation today?  The following graph shows where gold would need to rise today to back the recent paper currency creation by our Federal Reserve: $10,000 per ounce. (Click on chart for larger visual)


An even easier chart to follow is how far away we are from the fully backed black line. 


When we cross back over it will be time to sell your gold and purchase other assets that will be inexpensive such as stocks or real estate.

Until then, enjoy the pull backs and hope the price falls lower.

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