After studying great blog pricedingold.com I have got some suspition that measuring prices in gold doesn’t have to always be a way to see the real truth. Because:
A) Gold price often fluctuates greatly and irrationally, for example in the years 1970-1980.
B) Gold price is being manipulated. Downwards nowadays… You can see huge short sells outside regular trading hours, often around the time of bank holidays when trade volumes are even so low. Magnitude and timing of these trades seems to be deliberate attempt to move price down. Another evidence of manipulation seems to be the volume of real gold traded. There is nearly no real gold traded on american exchanges today. 99% of trades is paper gold. And there is more evidence like gata.ogr.
So what to do? Official inflation statistics are not reliable of course. One (to me) very good and reliable calculation of inflation is chapwoodindex.com. But I wished to try something else…
Lets take a look on money creation.
It is perfectly understandable if government creates 100% more money when population goes up 100% to keep prices stable.
But if government creates 100% more money, and there is no population growth, prices will most likely double (while population in general won’t become richer).
The same applies inversely. If government creates no money, but there is 100% population growth, prices will most likely go to one half (but population in general won’t become poorer).
So lets try to remove this money creation from prices by dividing prices by ever increasing rate of money in circulation. If there is a twice more money, lets divide prices by two. If there is 10 times more money, lets divide prices by 10.
NOTE: the huge advantage of this attemp is that the money supply grows steadily without short term fluctuation, so it provides much stable benchmark than gold (that is my humble opinion).
If possible my charts begin by year 1970 because fiat money system and insane money-printing started in the year 1971. I use annual data (last day of the year).
So welcome and enjoy! Continue to the Intro menu to learn more on calculations or go straight to the charts.