Thursday, November 15, 2007

Gold Price Dropping

Sometimes you will see the gold price dropping. There has been a substantial rise and then, suddenly,it turns around and drops. Many people then frantically sell gold but in fact it is those that buy gold (from those selling of course) who benefit the most. They get the gold at a reduced price because, sure as eggs are eggs, the gold price will rise again.

Gold price has traditionally risen, in the long term, and with small dips occasionally, has enabled the astute to make a tidy profit here and there. Anyone who has purchased gold over the past 10 years and not sold it, will be sitting back congratulating themselves with a proverbial pat on the back and a somewhat healthier asset balance.

More importantly perhaps, the value of gold has not changed over the past 50 -100 years. How could this be? You ask. It is simple. The value of gold does not change. But the value of the currency you use to buy and sell gold does. An ounce of gold will still purchase the same goods now as it did fifty or one hundred years ago. But you need an awful lot more dollars to make the same purchase with currency.

Keeping one ounce of gold for 10 years say and the cost of one ounce of gold in dollars at the time of purchase will quickly show the disparity in the value. One ounce of gold 10 years ago was around 300 dollars per ounce. These days it is running at around 750 to 850 dollars an ounce. but whereas the purchasing power of 300dollars has reduced over 10 years, the purchasing power of an ounce of gold has remained stable, in fact increased slightly.

Examples of inflation and the drop in the US dollar over the years are demonstrated below:

A postage stamp in the 1950s cost 3 cents; today's cost is 41 cents - 1,266% inflation;
A gallon of 90 Octane full-service gasoline cost 18 cents before; today it is $3.05 for self-service - 1,870 % inflation;
A house in 1959 cost $14,100; today's median price is $213,000 - 1,400% inflation;
A dental crown used to cost $40; today it's $1,100 - 2,750% inflation;
An ice cream cone in 1950 cost 5 cents; today its $2.50 - 4,900% inflation;
Monthly government Medicare insurance premiums paid by seniors was $5.30 in 1970; its now $93.50 - 1,664% inflation; (and up 70% past 5 years)

However one ounce of gold continues to purchase the same regardless of inflation since it is not the cost if living that has risen but the value of the dollar than has dropped.

In this way it can be seen that it pays to retain at least some assets in gold, regardless of any day to day or week to week fluctuations. In fact when the price of gold drops slightly, that is a good time to increase ones holdings in gold by taking advantage of a temporary lower price.

So, even with the gold price dropping, to buy gold can still be seen as an astute and successful action!

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