RSS FeedRSS

In numismatic circles the value of rare gold coins is constant. The price of the coins, however, depends on the value of the dollar.

October 24, 2011 – In numismatic circles the value of rare gold coins is constant. The price of the coins, however, depends on the value of the dollar. If we were to return to the gold standard, how would that affect gold coin investments?

The possibility of a return to the gold standard is no longer remote. As the political campaigns heat up Republicans are discovering that Dr. Ron Paul’s lifelong cause strikes a chord with voters. Americans are growing ever more suspicious of the Fed and, according to a recent Rasmussen survey, 73% “of all voters believe government and big business work together against the interests of consumers and investors.”

Disenchantment with the government is nothing new. A more telling revelation of the survey is that Americans trust their own thinking more and respect the so-called expert opinion less. Nearly two thirds now say that they “trust their own economic judgment more than President Obama’s” and just 9% “rate Congress’ job performance as good or excellent.”

The return to some sort of gold-backed currency is inevitable. That will have an enormous impact on the value of the dollar, and therefore the price of gold. Surprisingly, however, it should have little influence on the purchasing power of investments in rare gold coins.

In his classic book “The Golden Constant,” Roy Jastram quantified the relationship between changes in the purchasing power of gold and the price of commodities. Jastram’s study covers more than four centuries of both inflationary and deflationary periods, with data for the USA detailing five distinct periods from 1814 through 2007. (Dan Ascani updated the work with data from 1976 on.)

Jastram’s data clearly shows that changes in the ratio of gold’s purchasing power relative to growth in commodity prices has cycled between roughly 1 and 9 over that time.

If the cycle continues through this new period – as 400+ years of data suggest it will – the growth in the purchasing power of gold can be expected to outpace that in commodity prices by at least 8 to 1 before it peaks. And that holds true regardless of whether this new period proves to be inflationary or deflationary.

The future for gold coin investments looks exceptionally bright.

Kevin Johnson

Senior Staff Writer – GoldCoin.net

Get Your Complementary Award Winning Guides Below

 Publish Real Money Magazine

 Publish Gold Investment Magazine

 Publish IRA 401K Kit Magazine

 Real Money Magazine

captcha