U.K. and U.S. Show Most Currency Debasement Over Last Five Years

The graphic above shows an index for the price of gold as measured in each of the five currencies where the base level for the index was set five years ago.

Perhaps not surprisingly the two nations with the most highly developed financial services sectors are showing (according to the benchmark of gold purchasing power) the most debasement of their currencies.

Holders of sterling now have the dubious distinction of finding that it takes £2.75 to pay for the same amount of gold that would have only cost £1 in October 2004. The UK is also within a few pence of equaling the highest price that gold has ever been in terms of its currency.

The US actually has the highest dollar price for gold that has been seen historically - indicated by the fact that the dark blue line on the chart is at its highest level. However in comparison with the UK where it takes 2.75 times as much currency to buy the same amount of gold as it did five years ago, the holders of US dollars only have to part with about 2.35 times as much as they did five years ago.

When commentators refer to the unfortunate plight of dollar based asset holders they should also keep in mind that the Brits have haplessly managed to outperform them over the most recent five year period.

Comments

[Michael Clark:]

Waht's been fueling the party? Currency debasement. Isn't that what always fuels the party?

If the price of drugs and booze go up, and you can't afford them any longer, you become a criminal and start stealing money to pay for them. Debasing the currency is a form of theft to pay for the drugs and the booze we apparently all NEED (want, we don't really need them, in fact).

Bernanke has become the most powerful 'drug lord' in the world, I guess.

Oct 11 03:31 AM

[Dave Wrixon:]

The Pound has not devalued over the last five years, it has devalued since this financial crisis broke due to it high dependence on financial services. The current valuation are not realistic particularly vis-a-vis the dollar and the valuation of Sterling will improve as the World realizes that this crisis is primarily a US crisis. Bernanke and his cohorts can only keep the smoke and mirrors going for so long. I would not describe the Pound as a safe haven but its fundamentals are a hell of lot more robust than those of the Dollar. As for Gold I don't think it is British purchasing of the metal that is the main driver here, so what does it matter how much it costs?

Oct 11 03:47 AM

[Clive Corcoran:]

Dave,

The "crisis" is just as big a problem for the UK as it is for the US with debt to GDP ratios at very similar level and both approaching 100% soon. The UK government is stalling any real attempts to deal with the massive problems facing the public finances because it is trying to get re-elected next May.

In itself the price of gold is not critical to the UK but if one wants to create a reasonable reference point for assessing the declining value of each currency - independently than their exchange rate with US dollars per se - gold is a good proxy for several other key items that countries do have to purchase, for example, in global commodity markets

Oct 11 03:56 AM