Gold is Still Cheap

Here’s a historical comparison of the price of gold, the price of a new car, the price of an average home, and the average income from 1930 until 2024. This highlights how inflation and economic changes have affected different aspects of the economy over time.

1. Gold Prices (per ounce)

• 1930: $20.67
• 1950: $40.25
• 1970: $35.94
• 1980: $615.00
• 1990: $383.51
• 2000: $279.11
• 2010: $1,224.53
• 2020: $1,769.64
• 2024: ~$1,900 (as of mid-2024)

2. Price of a New Car (average)

• 1930: $600 – $700
• 1950: $1,510
• 1970: $3,900
• 1980: $7,200
• 1990: $16,000
• 2000: $21,850
• 2010: $29,200
• 2020: $37,851
• 2024: ~$48,000

3. Price of an Average Home (median)

• 1930: $3,845
• 1950: $7,354
• 1970: $17,000
• 1980: $47,200
• 1990: $79,100
• 2000: $119,600
• 2010: $221,800
• 2020: $320,000
• 2024: ~$420,000

4. Average Income (per year)

• 1930: $1,368
• 1950: $3,210
• 1970: $9,870
• 1980: $19,500
• 1990: $28,960
• 2000: $40,343
• 2010: $49,445
• 2020: $68,703
• 2024: ~$75,000

Here’s a comparative analysis of gold as a percentage of the price of a new car, an average home, and average income from 1930 to 2024, showing how the value of gold has changed relative to these economic indicators over time.

1. Gold as a Percentage of the Price of a New Car

2. Gold as a Percentage of the Price of an Average Home

3. Gold as a Percentage of Average Income

Comparing the gold reserves of various countries from 1930 to 2024 gives an insight into global economic power shifts, national monetary policies, and strategies for financial stability. Over the decades, countries have accumulated or reduced their gold holdings based on changing economic conditions. Here’s an overview of how gold reserves have evolved during this period.

1. 1930s: The Gold Standard Era

In the early 20th century, many countries adhered to the gold standard, where currencies were directly tied to the value of gold. This era made it essential for countries to hold substantial gold reserves.

• United States:
  • 1930: ~6,000 tonnes
  • The U.S. held the largest gold reserves as a global financial leader under the gold standard.
• France:
  • 1930: ~3,000 tonnes
  • France had accumulated significant reserves due to its large trade surpluses.
• United Kingdom:
  • 1930: ~1,800 tonnes
  • As a major colonial power, Britain held considerable gold reserves but was declining compared to the U.S.
• Germany:
  • 1930: ~2,000 tonnes
  • Germany was rebuilding its reserves after World War I, relying on gold-backed reparations.
• Soviet Union:
  • 1930: ~400 tonnes
  • The USSR had smaller reserves due to its relatively isolated and emerging economy.

2. 1950s: Post-War Realignments

Post-World War II, the Bretton Woods system was established in 1944, and many countries pegged their currencies to the U.S. dollar, which was backed by gold.

• United States:
  • 1950: ~20,000 tonnes
  • The U.S. increased its reserves substantially after World War II and controlled nearly 70% of the world’s gold by 1950.
• United Kingdom:
  • 1950: ~1,100 tonnes
  • The UK’s gold reserves had declined due to wartime expenses and post-war recovery efforts.
• Germany:
  • 1950: ~300 tonnes
  • West Germany was still recovering from the devastation of WWII, but it began accumulating reserves in the 1950s.
• France:
  • 1950: ~2,500 tonnes
  • France, under President Charles de Gaulle, pushed for stronger national reserves, including a gold accumulation policy.
• Soviet Union:
  • 1950: ~2,000 tonnes
  • The USSR grew its reserves as part of its post-war strategy to ensure financial stability.

3. 1970s: End of Bretton Woods and Gold’s Shift

In 1971, the U.S. abandoned the gold standard (Nixon Shock), severing the direct convertibility of the dollar to gold and shifting global economic policies.

• United States:
  • 1970: ~10,000 tonnes
  • The U.S. gold reserves had reduced as foreign governments exchanged dollars for gold under the Bretton Woods system.
• Germany:
  • 1970: ~3,000 tonnes
  • West Germany’s economic recovery was in full swing, and it became one of the top holders of gold reserves.
• France:
  • 1970: ~3,100 tonnes
  • France remained one of the top gold-holding countries due to its emphasis on financial independence.
• United Kingdom:
  • 1970: ~1,000 tonnes
  • The UK’s reserves had diminished, but it was still a key global player in finance.
• Soviet Union:
  • 1970: ~2,400 tonnes
  • The USSR continued to grow its reserves, partly to hedge against Western economic influence.

4. 1990s: Post-Cold War Realignments

After the fall of the Soviet Union and the end of the Cold War, gold played a less central role in monetary policy as fiat currency systems became dominant. However, gold remained a key reserve asset.

• United States:
  • 1990: ~8,133 tonnes
  • The U.S. retained the largest gold reserves, though central banking became more focused on a diversified portfolio.
• Germany:
  • 1990: ~3,400 tonnes
  • Germany maintained significant gold reserves, securing its position as a major European economic power.
• France:
  • 1990: ~3,000 tonnes
  • France’s reserves remained stable, continuing its long-standing tradition of holding gold.
• Russia (formerly Soviet Union):
  • 1990: ~300 tonnes
  • After the collapse of the USSR, Russia’s reserves were depleted, but it would begin rebuilding them in later years.
• United Kingdom:
  • 1990: ~700 tonnes
  • The UK sold a large portion of its gold reserves during the late 1990s in what became known as “Brown’s Bottom” (Gordon Brown, UK Chancellor).

5. 2024: Modern Gold Reserves

In the 21st century, countries increasingly view gold as a safe-haven asset amidst economic uncertainty, inflation, and geopolitical instability.

• United States:
  • 2024: ~8,133 tonnes
  • The U.S. still holds the largest gold reserves, even though the percentage of reserves as part of its overall assets has diminished.
• Germany:
  • 2024: ~3,360 tonnes
  • Germany continues to hold a large portion of Europe’s gold reserves, reflecting its status as a stable economic powerhouse.
• France:
  • 2024: ~2,436 tonnes
  • France’s reserves have decreased slightly, but it remains a major holder of gold.
• Russia:
  • 2024: ~2,300 tonnes
  • Russia has aggressively rebuilt its gold reserves over the past decade, especially following sanctions from the West and the annexation of Crimea in 2014.
• China:
  • 2024: ~2,113 tonnes
  • China has significantly increased its gold reserves in recent years as part of its strategy to reduce reliance on the U.S. dollar.
• India:
  • 2024: ~800 tonnes
  • India, one of the largest consumers of gold, also holds substantial reserves as part of its monetary policy.

Summary of Gold Reserve Trends (1930 – 2024)

1. United States: The U.S. consistently held the largest gold reserves throughout this period. While reserves peaked in the post-WWII era, they have remained stable since the end of Bretton Woods in 1971.
2. Europe: Germany and France have remained top gold holders, reflecting their desire for financial stability within the EU framework.
3. Russia: Russia’s gold reserves have fluctuated but have grown substantially since the 1990s, particularly in response to geopolitical tensions and economic sanctions.
4. China: China’s gold reserves have increased notably over the last two decades, highlighting its long-term strategy of reducing dependency on the U.S. dollar.
5. United Kingdom: The UK’s decision to sell a large portion of its reserves in the 1990s resulted in diminished holdings, but it remains an important financial center.

The comparison between central bank gold reserves and the value of currency in circulation from 1930 to 2024 reflects the evolving role of gold in monetary systems and how central banks manage their monetary policy and currency supply over time. The relationship between gold reserves and currency circulation shifted dramatically with the end of the gold standard in the 20th century, followed by the introduction of fiat currencies and modern monetary practices.

1. 1930s: The Gold Standard Era

• Monetary System: Most countries were on the gold standard, where currency was directly backed by gold. The value of gold reserves held by central banks was closely tied to the amount of currency in circulation.
• United States:
  • Gold Reserves: 6,000 tonnes ($11 billion in 1930)
  • Currency in Circulation: $4.2 billion (currency was backed by gold)
• United Kingdom:
  • Gold Reserves: ~1,800 tonnes
  • Currency in Circulation: £550 million
• France:
  • Gold Reserves: ~3,000 tonnes
  • Currency in Circulation: 75 billion French francs
• Germany:
  • Gold Reserves: ~2,000 tonnes
  • Currency in Circulation: 7 billion Reichsmarks

At this time, the ratio of gold reserves to currency in circulation was quite high, as each nation’s currency was backed by physical gold under the gold standard.

2. 1950s: Bretton Woods System

Post-World War II, the Bretton Woods Agreement (1944) created a system where currencies were pegged to the U.S. dollar, which was in turn backed by gold. Other currencies were indirectly tied to gold through their peg to the dollar.

• United States:
  • Gold Reserves: 20,000 tonnes ($12 billion in 1950)
  • Currency in Circulation: $28 billion
  • The U.S. had the world’s largest gold reserves, and the dollar’s value was tied to gold at $35 per ounce. Gold reserves covered about 43% of currency in circulation.
• United Kingdom:
  • Gold Reserves: ~1,100 tonnes
  • Currency in Circulation: £2.7 billion
• Germany:
  • Gold Reserves: ~300 tonnes (rebuilding post-war)
  • Currency in Circulation: 11.6 billion Deutsche Marks
• France:
  • Gold Reserves: ~2,500 tonnes
  • Currency in Circulation: 500 billion francs

Although countries were shifting to a pegged currency system, central banks still held significant gold reserves, though the coverage of currency in circulation by gold began to diminish.

3. 1970s: End of Bretton Woods and Fiat Currency

In 1971, the U.S. suspended the convertibility of the dollar to gold (Nixon Shock), marking the end of the Bretton Woods system and the shift to fiat currency. Gold reserves were no longer tied to the amount of currency in circulation.

• United States:
  • Gold Reserves: 8,133 tonnes ($320 billion in 1970 at $35/oz)
  • Currency in Circulation: $55 billion in 1970
  • The value of gold as a percentage of currency in circulation dropped as the dollar was no longer backed by gold.
• United Kingdom:
  • Gold Reserves: ~1,000 tonnes
  • Currency in Circulation: £5.8 billion
• Germany:
  • Gold Reserves: ~3,000 tonnes
  • Currency in Circulation: 50 billion Deutsche Marks
• France:
  • Gold Reserves: ~3,100 tonnes
  • Currency in Circulation: 700 billion francs

The abandonment of the gold standard and the move to fiat currency drastically reduced the connection between gold reserves and currency in circulation. By the late 1970s, inflation and currency expansion became increasingly managed through monetary policy rather than gold reserves.

4. 1990s: Fiat Money and Diminishing Role of Gold

By the 1990s, gold had become a much smaller component of national monetary systems. Central banks continued to hold gold, but the amount of currency in circulation was now managed based on economic conditions, interest rates, and inflation targets rather than the gold standard.

• United States:
  • Gold Reserves: 8,133 tonnes ($100 billion at 1990 prices)
  • Currency in Circulation: $250 billion
• United Kingdom:
  • Gold Reserves: ~700 tonnes (large sales in late 1990s)
  • Currency in Circulation: £25 billion
• Germany:
  • Gold Reserves: ~3,400 tonnes
  • Currency in Circulation: 350 billion Deutsche Marks
• France:
  • Gold Reserves: ~3,000 tonnes
  • Currency in Circulation: 1 trillion francs

By this time, the gold-to-currency ratio was much lower. Central banks held gold more as a hedge and safe asset rather than to back currency in circulation.

5. 2024: Modern Fiat System with Gold as a Hedge

In modern times, fiat currencies are fully detached from gold, with central banks using interest rates, quantitative easing, and other tools to control currency supply and inflation. However, gold remains an important reserve asset, often serving as a hedge against inflation, economic instability, or geopolitical risk.

• United States:
  • Gold Reserves: 8,133 tonnes ($500 billion at $1,900/oz in 2024)
  • Currency in Circulation: $2.3 trillion (including cash and bank reserves)
• United Kingdom:
  • Gold Reserves: ~310 tonnes
  • Currency in Circulation: £95 billion
• Germany:
  • Gold Reserves: ~3,360 tonnes
  • Currency in Circulation: €1.5 trillion (including Euros in circulation)
• China:
  • Gold Reserves: ~2,100 tonnes
  • Currency in Circulation: ¥10 trillion
• Russia:
  • Gold Reserves: ~2,300 tonnes
  • Currency in Circulation: ₽9 trillion

Summary of Trends (1930 to 2024)

1. Gold Standard Era (1930s): The value of gold reserves was tightly linked to currency circulation, with high gold-to-currency ratios.
2. Post-WWII Bretton Woods System (1950s): Gold reserves remained significant, but currency expansion grew as countries pegged their currencies to the dollar rather than directly to gold.
3. End of Gold Standard (1970s): The move to fiat currencies ended the direct connection between gold reserves and currency, and the ratio of gold to currency in circulation declined.
4. Modern Era (1990s-2024): Gold plays a smaller role in backing currency. Central banks hold gold as a hedge, while currency expansion is managed through monetary policy, resulting in a very low percentage of currency covered by gold.

Current Trends

• In 2024, central banks are holding significant gold reserves, but the value of these reserves as a percentage of currency in circulation is much lower than during the gold standard.
• For example, in the U.S., gold reserves ($500 billion) cover only ~22% of the currency in circulation ($2.3 trillion), compared to over 100% in 1930.
• In countries like China and Russia, gold reserves have grown as part of a strategy to diversify away from reliance on the U.S. dollar, though currency expansion far outpaces gold accumulation.

The relationship between gold reserves and currency in circulation has shifted drastically over the last century. While gold was once the backbone of monetary systems, its role has diminished as fiat currencies and modern monetary policies have taken over. Despite this, many central banks continue to hold gold as a valuable reserve asset, especially in times of economic uncertainty.

Key Insights:

1. Gold as a Percentage of Car Prices:
   • In the early years, gold represented a relatively small percentage of the price of a new car (3-4%). However, during periods of economic uncertainty and inflation (e.g., 1980), gold’s value surged to make up a larger percentage of a car’s price. Since then, gold’s value relative to cars has fluctuated, with a slight rise during economic instability in the 2010s and 2020s.
2. Gold as a Percentage of Home Prices:
   • Historically, gold has made up a very small percentage of the price of an average home. Even during high-value years like 1980, gold represented just over 1% of the home price. As home prices have skyrocketed, particularly in the 2000s and 2020s, the percentage of gold’s value in relation to home prices has remained modest, hovering around 0.5%.
3. Gold as a Percentage of Income:
   • Gold’s value relative to income has been volatile. In 1980, when gold prices peaked due to inflation and economic instability, it represented over 3% of the average income. This percentage dipped in the 1990s and early 2000s but has risen again in recent years to about 2.5%, reflecting the increased demand for gold as a store of value during periods of global uncertainty.

Shayne Heffernan