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European Firm Explores “Gold-Beer Ratio”

June 4th, 2017 by

Because of gold’s unique monetary properties, the values of various assets are often expressed in terms of how much one ounce of pure gold could purchase. This gives a kind of objective measuring stick for purchasing power over time that compensates for inflation.

The famous British publication The Economist invented a “Big Mac Index” based on the same concept. We tend to think gold is a better barometer for this purpose than a burger.

The classic example that demonstrates gold’s usefulness as an inflation hedge is to cite that an ounce of gold could buy a fine suit at the turn of the 20th century; today, that same ounce of gold (approaching $1,300 per ounce) is likewise worth the as much as a nicely tailored suit.

You can do this comparison with virtually any product, commodity, or service to judge how it’s been impacted by inflation over time. One asset management firm known as Incrementum based in Lichtenstein, and a tiny and wealthy central European country, looked at the historical gold-to-beer ratio for a typical Oktoberfest beer in Germany, going back to 1950.

Gold Priced In Maß?

The researchers defined their “standard beer” as one liter and represented each unit as “Maß,” using the only letter of the German alphabet that does not appear in Latin (ß), known as the sharp S or double S.

beer

Frik Els for Mining.com cheekily points out that the “driest” year, in terms of when beer was most expensive relative to gold, was in 1971. An ounce of the yellow metal got you just 48 liters of pilsner that year. By contrast, in 1980, an ounce of gold was enough for 227 Maß, the all-time high. The historical median over the past seven decades is 87.

There is indeed something interesting about measuring gold’s purchasing power in terms of how much beer it can buy. It’s a product that’s in reasonably high demand all around the world, and—more importantly—the comparison implies (or rather correctly assumes) that gold should be considered more like a currency than a commodity.

 

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.

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