In 1939 my father worked for 35 cents an hour in an average job. A silver dollar equaled three hours of work . Gold was $35 an ounce or about 100 hours of average pay. If average pay is $12 hour today then silver should be $35 dollars and Gold $ 1200. Comments?
The value of a unit labor / a unit of gold is only one factor right now.
The opportunity cost of lost value in a collapse of the currency is actually much greater than the unit value of labor alone. If the record of labor held in paper dollars is burned up in inflation and devaluation then the insurance value of hard currency in the form of anything of tangible value is skewed to reflect that also. That's one I'm not sure we can put a real value on though... I suppose you could look at M3 and project what would happen during the collapse and try to forcast the lost value and link that to whatever hard currency... precious metals, food, water or energy. We're in a situation that we have never been in before so trying to quantify it is next to impossible... but whatever happens there are none of us that will be untouched by the meltdown... I'm just glad I'm old... but am very frightened for my kids and grandkids. It's time for a revolution... but Americans are too soft and spoiled for that to happen while they still have full bellies... and when their bellies get empty it will be too late to pull it off.
The gold value of work is affected by two factors: 1) Productivity, which has gone up. Your father would produce more goods and services per hour now than then because of advances in technology (computers, e.g.). Productivity averages 1-3%/year...say 2%. 1935-2008 is 73 years. That means up 4.2 x. 2) The value of gold has decreased by a factor of about 3x since 1939, because there is more gold now than then http://www.goldsheetlinks.com/production2.htm
So one hour of your Dad's work would be worth 4.2/3 = 1.4x the value in 1939 in terms of gold. That means one ounze of gold only buys 71 hours of his work. That prices gold at $851/oz based on $12/hr. Remember, however, that hourly wages are indexed to the CPI which may underestimate inflation and therefore cost-of-living increases. So your $12 figure, while nominally within ball-park, should be much higher if truly adjusted for price inflation, therefore the inflation-adjusted POG also should run much higher.
Thanks, that was really sophisticated analysis . I think Gold should also fluctuate based on Geo political events and fears of economic instability in general. Bottom line these prices today for Gold and silver are not inflated but actually rather cheap.