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Gold makes long-term monetary devaluation visible

News Arnulf Hinkel, Financial Journalist – 01.06.2023

Gold investors look at the gold price development over the last weeks, months or even years. In doing so, they often fail to notice that even in a seemingly unattractive sideways movement, as was the case in several months last year, gold has a positive portfolio effect. Unlike money, gold retains its value in the long term and therefore serves as a protection against inflation. This is further clarified when relating gold performance to that of fiat currencies. The recently published “In Gold We Trust Report” 2023 contains a long-term analysis of various important currencies – with shocking results.

All analysed currencies are worth only a fraction today

Reuters Eikon compared the gold price development and fiat currencies over a period spanning more than half a century, from the Nixon shock and the end of the gold price peg in 1971 to the end of May 2023. According to the analysis of the underlying data, the US dollar has lost 98.27 per cent of its purchasing power over this period, and other currencies showed similar results. The euro, initially introduced as book money in 1999, as well as the member state currencies predating the introduction of the single currency, have lost marginally less than the US currency since 1971. Today, the euro is at only 1.7 per cent of its former purchasing power; the Japanese yen and Swiss franc have fared somewhat better, but today they merely retain a respective 4.33 and 7.74 per cent of their value from 52 years ago.

Comparing the purchasing power of currencies since the end of the gold price peg to the US dollar

The data on which the calculation is based was created by comparing individual currencies with the price development of gold by using the gold price right after the collapse of the Bretton Woods system in 1971 as a benchmark and determining a value of 100 per cent for all analysed currencies. From this point, the purchasing power development of the currencies was compared to that of the gold price. This long-term comparison impressively confirms the precious metal’s quality in terms of value storage.

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