The Bureau of Labor Statistics (BLS) Inflation Calculator

This very fine example of a $20 St. Gaudens gold piece was minted in 1913, the earliest year for which the Bureau of Labor Statistics' inflation calculator has data available.  Since we were on the antiquated system of commodity money back then, it is an interesting exercise to see what $20 in 1913 would buy in today's dollars - particularly with the rise in gold prices over the last few years.  Obviously we're not using the gold standard, but let's take a quick peek at what inflation can do over a long period of time and compare it to the price of gold.

Overall Inflation

Using the BLS inflation calculator, the buying power of $20 nearly a century ago would now purchase $440.76 of goods and services today.  This represents a 22-fold increase in consumer prices as measured by the consumer price index.

Melt Value

Next, let's see what the melt value (the value of the gold if the coin was melted) would be.  The amount of pure gold in a $20 St. Guadens coin was 0.96750 ounces.  With spot gold at $1,243.40 as of June 24th's close, that would equate to a value of $1,202.99.

Collectible Value

Obviously the melt value is substantially more than the inflation adjusted value.  However, there is also some numismatic value to a the gold piece pictured above.  As of this writing, it was listed on eBay for the low, low price of $6,875!!!  Not bad at all.

Wrapping Up

Going through some inflation calculations is a valuable exercise because we can see how consumer prices have changed over time.  If you ask someone in their 70s or 80s how much they paid for their first home, there's a good chance that they paid more for their last car.  By using the inflation calculator, you can begin to understand the importance of accounting for inflation in your planning for retirement and college.

Critical Thinking

• If the gold standard were still being used in the United States, how would that impact the value of gold?  Would the $20 gold piece depicted here be value nearer the inflation adjusted price or the melt value?
• Gold is often touted as a hedge against inflation.  Based on this single calculation, it would appear that this claim is correct.  But what if you purchased gold at $700 per ounce in 1980.  Would you be ahead of or behind inflation today?
• Gold has seen two major price spikes since 1975.  One happened in the late 1970s and early 1980s, the other is happening now.  Should gold be a major part of your portfolio today?

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Comments

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