Saturday, 10 October 2009

Two nations with most developed financial services sector show most currency debasement over last 5 years

The graphic above shows an index for the price of gold as measured in each of 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.

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