Remember when gasoline was 19.9 cents a gallon?
The reason I recall is because one Saturday morning when I was very young, my father and my uncle and I were out running errands. What those errands might have been, I cannot say.
But when we came to a familiar gasoline station near the shopping center that we often went to, the sign said gasoline was 19.9 cents per gallon.
My father and uncle said I should look at the sign and remember the price because I would never see gasoline as cheap again.
There was a gas war on.
I duly recall the event even though it happened 54 years ago – I think.
It could have been 53 years ago or 55 years ago.
Even though I remember the price, there is nothing that anchors it precisely in my memory.
My father and uncle were right. I never saw gasoline that cheap again. It was $3.659 this morning on my way to work.
If my father and uncle had been able to buy an ounce of gold for the official price of $35 an ounce they would in effect have something worth 175.88 gallons of gasoline on that day long ago.
Take that ounce of gold out today. At the current price of $1,315, I would be able to buy 359.39 gallons of gasoline, which is about twice as much.
You can do two things with this information. You can say it demonstrates the ability of gold to protect your financial well being over a long period of time.
On the other hand, you can say that as an inflation hedge, gold should simply track price rises, not exceed them by a huge margin.
By this line of reasoning, gold is overpriced or gasoline is underpriced.
I don’t think anyone will assert that gasoline is underpriced, so let’s just throw that aside.
If gold then is overpriced, what is the appropriate figure?
If we use this gasoline yardstick, and multiply 175.88 gallons purchased way back when by the current $3.659 price, we would get a value of $643.54.
That would be the price of gold if it precisely tracked the price of gasoline over time since I saw gasoline at the 19.9 cents price.
Will the price of gasoline rise to meet the present gold price and restore the purchasing power of gold to the same point as 54 years ago?
Will the price of gold fall to achieve the same end? Or will both prices change?
If you can figure out the answer to these questions, you will know where the price of gold is headed.
Buzz blogger Dave Harper is winner of the 2013 Numismatic Literary Guild Award for Best Blog and is editor of the weekly newspaper "Numismatic News."