CPI and Real CPI Adjusted Charts
Inflation
Inflation (a growing currency supply leading to rising prices) is the hidden tax. It is vital to use inflation adjusted charts when looking at historical prices to avoid misinterpretation.
Strictly, what matters is the rate of growth of the money supply versus the real productive growth of the economy. If the money supply growth outstrips the real productive growth rate, then prices will tend to rise. In other words the purchasing power of the currency will decline.
The fiat currencies are not a fixed metric against which other things should be measured. A the very least the changing purchasing power should be included in any longer-term charts.
Why everyone should hold some gold & silver
It used to be 'common sense' for investors to hold 5 to 10% of their liquid portfolio in gold and silver, just in case something catastrophic occurred. It was insurance. That 'common sense' has been lost by most people, and so very few people hold and gold or silver. It's as if most of population has forgotten what house insurance is for, and are now uninsured.
But, 'common sense' is returning, due to the recent financial events. And with that return is the inevitable extra demand for gold & silver, and with the very limited supply, the inevitable rise in price.
In my opinion the case for holding at least 10% of your liquid portfolio in gold and silver is very strong.
I think you should apply the "don't put all your eggs in one basket" rule.
Here are two options for at least some of your gold and silver holdings that I think are excellent.
Places to buy and store gold and silver
These two firms offer very reasonable charges on buying and selling real physical allocated gold and silver. That is VERY important. With these companies you are buying the real physical metal, not a paper promise.
They also store your gold/silver for you at very low costs.
They are the best options I have found.
With Bullion Vault you also get a free gram of gold, so you can register and try out the system completely without charge.
Only Gold Money used to offer silver, which offered the advantage of being able to swap between gold and silver. But soon Bullion Vault will also offer silver.
Personally I consider selling gold or silver at the moment quite inappropriate. But, it is a reasonable idea to swap some gold for silver at what you consider to be dips, and to swap some silver for gold at what you consider to be peaks. That way you maintain your ownership of real money while trying to benefit a little from the volatility of the long-term bull market.
Even if you are not sure about buying gold and silver, I think it is a very good idea to open an account with both of these companies. It won't cost you anything but a little time, and if you do decide that owning some gold and silver is a sensible precaution, then you can do so very quickly.
My CPI Adjusted Charts
What follows are many of my CPI adjusted charts for gold & silver, and other sectors. I hope you find them useful.
US Consumer Price Index (CPI)
A linear plot. You can see how the CPI stays relatively constant from 1774 till the creation of the Federal Reserve in 1913. Then prices started to climb. The methodology for calculating the CPI was changed in 1983, and the result diverged from what the result would have been if they had continued with the old methodology.
A log plot. You can see the zero net price change from 1774 to 1913. Then prices started to climb.
Gold Charts
The conventional way of inflation adjusting, where prices are adjusted in terms of the purchasing power of today's currency. The gold line is actual GoldUS$ prices. The purple line prices adjusted using the official CPI numbers for the US. The green line prices adjusted using the Real CPI numbers.
ShadowStats CPI Adjusted Gold and Silver Charts from 1720
Two great charts, one for gold and one for silver.
http://www.sharelynx.com/chartstemp/FreeGoldSilverSSCPI.php
A less conventional chart, adjusted in terms of the purchasing power of 1980 currency. View it as if you were living in 1980 and you had knowledge of future prices and inflation.
Gold Adjusted by Money Supply Inflation
True inflation is the growth in the amount of money (as opposed to price rises). There are various money supply measures. This wonderful chart shows the price of gold adjusted using a variety of those measures.
With thanks to http://en.wikipedia.org/wiki/User:Emilfaro who created it here: http://commons.wikimedia.org/wiki/File:Gold_Inflation_Adjusted.png
US Real CPI Adjusted House Prices
New Zealand Real CPI Adjusted House Prices
Real CPI Adjusted S&P500 from 1871
Wed, 29/07/2009 - 01:29
#2
Gold Adjusted by Money Supply Inflation chart added
I've just added this wonderful chart.
Put simply, if the money supply grows at the same pace as REAL productive economic growth, prices will remain roughly constant long-term.
If however, the money supply grows faster than the economy, prices will tend to rise long-term.
One could argue that the gold supply grows very slowly, at about 1 to 2%/year, and so the gold price should roughly increase by the rate of money supply growth minus that gold supply growth, long-term.
This chart is so good because it matches nicely with my Real CPI Adjusted Gold Price chart.
Sat, 10/10/2009 - 09:13
#3
ShadowStats CPI Adjusted Gold and Silver Charts from 1720
Two great charts, one for gold and one for silver.
Thu, 17/06/2010 - 01:26
#4
Supporting Evidence from The Grandfather Report
Michael Hodges has an astounding website:
http://grandfather-economic-report.com
This page provides supporting evidence for my assertions:
http://grandfather-economic-report.com/inflation.htm
Quote:
Inflation in my adult years increased average prices 1,000% or more -
example 1: a postage stamp in the 1950s cost 3 cents; today's cost is 42 cents - 1,300% inflation;
example 2: a gallon of 90 Octane full-service gasoline cost 18 cents before; today it is $3 for self-service - 1,567 % inflation;
example 3: a house in 1959 cost $14,100; today's median price is $169,000 - 1,100% inflation;
example 4: a dental crown used to cost $40; today it's $1,100 - 2,750% inflation;
example 5: an ice cream cone in 1950 cost 5 cents; today its $2.50 - 4,900% inflation;
example 6: monthly government Medicare insurance premiums paid by seniors was $5.30 in 1970; its now $96.40 - 1,889% inflation; (and up 70% past 5 years)
example: several generations ago a person worked 1.4 months per year to pay for government; he now works 5 months.
And in the past, one wage-earner families lived well and built savings with minimal debt, many paying off their home and college-educating children without loans. How about today?Few citizens know that a few years ago government changed how they measure and report inflation, as if that would stop it - - but families know better when they pay their bills for food, medical costs, energy, property taxes, insurance and try to buy a house.
Is inflation a threat to society? Consider these famous quotes:
"There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose." Lord John Maynard Keynes (1883-1946), renowned British economist."Paper money eventually returns to its intrinsic value > > zero.” - Voltaire, 1778 philosopher
If you found this article interesting, you may also like to checkout these:
An explanation of using MZM money supply in relation to the gold price:
The APPROXIMITY MZM Gold Price Model
http://neuralnetwriter.cylo42.com/node/2178
My summary of what is fiddled and why:
A Summary of the Statistical Lies and How they Paint a False Picture by Steve Netwriter
http://neuralnetwriter.cylo42.com/node/430
The Last Gasp of Fiat Money versus Real Money by Steve Netwriter
http://neuralnetwriter.cylo42.com/node/436
This one covers the UK stock market and measuring performance CPI adjusted and versus gold:
Will Investors Be Fooled Again Into Thinking Stocks Are Going Up by Steve Netwriter 25th May 2009
http://neuralnetwriter.cylo42.com/node/898
This one compares US CPI & Real CPI with the CPI reported here in New Zealand. My suggestion is that many countries of the world have had their CPI numbers fiddled to a similar degree. It also suggests that house prices may not fall in terms of the local currency, but they will fall in real terms:
NZ House Prices versus CPI and Real CPI
http://neuralnetwriter.cylo42.com/node/340
A very long-term view of major currencies:
Long Term Currency Charts
http://neuralnetwriter.cylo42.com/node/337
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