Real Wages

Wages in Gold:  Short-Term Implications

Gold is dear relative to wages.


((Average hourly wage/Gold per ounce)*40)

     Gold prices are at 30 year highs relative to wages.  In the past twelve years the average 40 hour a week worker's wage has fallen from over 2 ounces a week to half of an ounce a week.  With the introduction of QE3 and the continuation of Twist, not to mention the Fed putting excess MBS profits into more purchases of MBS (insert other circle operations here) folks seem to think gold is going higher.  It is very difficult to argue against that point in the long-term.  However, in the short-term velocity of money is at depression era levels, and so until money begins circulating at a normal pace, one should think gold will remain relatively stable*.


(GDP/Monetary Base)

However, should velocity increase to 12x then $3,400 is could be expected.  Sadly at this point it should be noted that an average work week would garner a quarter ounce of gold and it is my belief this scenario is highly likely.

One great thing about a system based on credit, you have to have credit to keep things going, thus lending will return.......the fed can only print so much.

Interesting reading:

Gold, Fiat Money and Price Stability
http://research.stlouisfed.org/wp/2003/2003-014.pdf


 *I realize the gold is always stable since it is the original currency, and that it is truly other fiats that are volatile, but we live in a fraction reserve fiat system and it is the most common medium of exchange.


As an interesting side note (pun intended), below is an inverted chart of gold (essentially purchasing power of our lovely Federal Reserve Notes)


(Gold per Ounce/-1)