Sunday, February 05, 2006

Gold in real dollars

David Morgan of discusses the recent gold price highs and the media's focus on the metal's nominal price in dollars. In an article entitled, "How to buy gold for $252 per ounce", Mr. Morgan gives us his view as to why it is important to examine gold's price in real terms. A quote:
"if gold were really and truthfully hitting a 24 year high in real terms it would have to be over $1000 in U.S. “dollars.” This is the crux of the issue and the one principal that once understood becomes the strongest point for gold ownership."

In making this point, Morgan is also drawing attention to a larger issue: that the purchasing power of paper money is eroding over time. Therefore, the hoped-for profits we register in current dollars often prove illusory when measured correctly over time in real terms.