Paper versus Metal. The irony of too much versus not enough

“Money
Get away
Get a good job with more pay
And you’re O.K.
Money
It's a gas
Grab that cash with both hands
And make a stash
New car, caviar, four star daydream
Think I'll buy me a football team.”
Pink Floyd, 1973

When the song “Money” was released by Pink Floyd back in 1973, the purchasing landscape of the US dollar was quite different than today. The average new house was around $35,000. The average car was about $4000 and a gallon of gas was a mere .39. The year 1973 actually marked the end of the Bretton Woods Agreement which formerly dissolved the relationship between the dollar and gold. Since the dollar had been freed up from any tangible store of value, the Federal Reserve started the US Dollar Index to keep tabs on it. The index is calculated by considering the exchange rates of six major, world currencies: the Euro, the Japanese Yen, the Canadian Dollar, the British Pound, the Swedish Krona and the Swiss Franc.

The USDX started at 100 back in 1973, and its fluctuating value demonstrates the percent of change in the dollar since then. With a current index of about 81.5, the dollar has lost over 18% of its value against other currencies and over 90% of its buying power on an absolute basis. Stated another way, it would take $5.26 in 2013 to match the purchasing power of a $1.00 in 1973. Standing in stark contrast to this, is the world’s most precious metal. The price of gold in 1973 was about $97 an ounce. If we compare that to today’s $1321 an ounce, it represents a 1260% increase in value in the past 40 years.

The dollar’s deterioration is nothing short of legendary, and gold’s dramatic rise is equally fabled. What is perhaps most extraordinary, however, is that we continue to print more and more dollars!

Paper money, simply stated, lacks inherent value. It is a linen and cotton promissory note depicting the glare of eight US presidents, Alexander Hamilton and Ben Franklin. It represents “good faith” to pay a designated amount along with an unyielding belief in the monetary system. The concerns about money printing come down to value. Expansionary money policy leads to a depreciated currency. So creating more dollars does not deliver more money … and after three rounds of Quantitative Easing, the Fed has a $3.5 trillion balance sheet to show for it.

Precious Metals on the other hand, couldn’t be more limited. The earth is simply not making any more silver and gold … and despite mankind’s technological advancements, mining is getting harder. The precious metal deposits that remain are more difficult to find and more expensive to bring to market. Silver is perhaps the most endangered metal on the planet. Because of its extensive use in digital and solar technology, experts estimate that the world’s silver supply could be exhausted as soon as 2021. Meanwhile, supplies of gold have been equally diminished by widespread production cuts within the mining sector. With physical demand in China and India remaining at very high levels for both metals, a new conversation is emerging about rising demand, falling supplies, and critical shortages … all of which translates to higher prices.

And yet, so many continue to chase paper money … But for those that acquired gold back in 1973, LESS has clearly been a whole lot MORE in 2013!