Using Gold to Measure Assets

Gold may not be our currency anymore (besides for you anarchists out there), but it is still a viable tool to measure the value of other assets.

Gold was used as money for commerce for 5 thousand years. Today we can still use it as our money in the financial world. The way we do this is rather than measuring assets in amount of dollars, we measure them in ounces of gold.

Using Gold to Measure Stocks 

Public shares of stock were introduced as a way for people and businesses to store their capital within another company. The reason stocks are so popular, is that these companies continue to work and create income. This income manifests in the company's balance sheet or in the form of dividends to the shareholder.

Gold as an asset doesn't produce anything. But, it does act as a store of  value and a unit of measurement. We can see over the long term, stocks are getting more expensive in terms of gold. They bottomed back in 2011 when gold peaked in dollar terms. We can see stocks are trending higher, so this may be a signal to be in stocks against gold right now. However, we can't necessarily say that stocks are cheap right now. Stocks are considered cheap when they are in the 1 to 7 range.

Using Gold to Measure Silver

Gold and silver both act in tandem as units of measurements and stores of value over the long term. Silver tends to be a leverage play off of gold. On the upside silver outperforms gold. To the downside the opposite happens. Over the long-term gold has outperformed silver. Imbalances occur during swings in price, creating opportunity for investors.

It is more common for people to use the gold/silver ratio, but in this article we are using the silver/gold ratio. In other words, we are pricing silver in ounces of gold. We can see that the chart is approaching all time lows. I would consider silver to be cheap in terms of gold, but know that it is difficult to find long terms returns on your gold by storing its value in silver.

Using Gold to Measure Cryptocurrency 

Many refer bitcoin as "gold's replacement." I couldn't disagree more. I believe crypto and precious metals are complimentary, not competitors. Both can be stores of value on different timelines. 

Bitcoin has moved so quickly that it is hard to get any accurate data on it's valuation in gold. I think this is may be a signal that cryptocurrency is moving too fast.

This is definitely an outlier, and we can't put a valuation on crypto in terms of gold.

Using Gold to Measure Oil 

There are investors who see oil as a good way to add a kick to their portfolio. I believe that fossil fuels are essentially worthless. Why pay solely for oil out of the ground when there is a plentiful amount of biofuel that can be made with plant waste? I won't get too deep into my opinion, but I believe in the long term we won't run out of oil. I believe the value of oil with stagnate and be increasingly volatile.

Over the long run we can see that oil is essentially moving sideways, stagnating, and even hitting lower lows in terms of gold. There is no real growth in this space.

Using Gold to Measure Real Estate

Along with gold, real estate has been on of the tried and true ways of storing and building wealth.

After the '08 crisis, all people can think about is how overvalued real estate was and still might be. The fact of the matter is that US real estate is relatively cheap in terms of gold.

Overview:

The common narrative by contrarians is that the economy is going to collapse, stocks are going to tank along with real estate. While this may be true in dollar terms, the opposite is true in terms of gold. 

Thanks for stopping by! Until next time.

 Disclaimer:
The information in this article is meant only as educational content, expressed opinion, and not investment advice. Investing your money in openly traded companies is risky and can result in the loss of principle. Investing in commodities is more risky than trading company stock as commodities are open to more risk since they are traded on the global market. This means that the ETFs of the underlying commodities (GLD and SLV) are at risk to having big movements in price while the US markets are closed. Cryptocurrency carry a great amount of risk as well. Only invest what you can afford to lose, and always do your own research. 

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