Inflation is the debasement of money by government.

Historically speaking, the term ‘debasement’ referred specifically to a reduction in the value of the money (gold and silver coins) in circulation.

Over time, the circulating money continues to lose value. This results in an ongoing increase in the general level of prices for goods and services.

Wikipedia defines inflation as “a sustained increase in the general price level of goods and services in an economy over a period of time” and is “a reduction in the purchasing power per unit of money – a loss of real value in the medium of exchange and unit of account within the economy.”

Deflation, as defined by Wikipedia, “is a decrease in the general price level of goods and services.”  (What we are currently experiencing is called ‘disinflation’ which is a lower rate of inflation.)

Also, according to Wikipedia: “Inflation reduces the real value of money over time, but deflation increases it. This allows one to buy more goods and services than before with the same amount of money.”

The purpose of this essay is to clarify and explain accurately what to expect regarding gold prices if deflation occurs.

The United States Government, via the Federal Reserve Bank, has been  practicing inflation regularly for over one hundred years. They are good at it. Their efforts have resulted in a ninety-eight percent “reduction in the purchasing power per unit of money.”

The reduction in purchasing power of the U.S. dollar is reflected in the higher price of gold.

In 1913, with gold at $20.65 per ounce, twenty U.S. dollars in paper money was equal to twenty dollars in gold. Today gold is at $1270.00 per ounce, more than sixty times higher than in 1913.

The higher price for gold does not mean that gold has experienced an increase in purchasing power. Rather, its higher price reflects the decline in purchasing power of the U.S dollar.