Julian Van Erlach, Nexxus Wealth Technologies, Inc.

Abstract:

Gold is shown to obtain a real return in terms of global purchasing power per Troy oz. Whereas fiat money obtains a negative return equal to the inflation rate (loss of purchasing power) which is directly related to the excess of money stock growth to real GDP, gold obtains a real yield due to inherent above-ground stock growth below the rate of world real GDP growth. This effect has historically been masked by measuring the price of gold in currencies that have appreciated and not in global purchasing power. A novel solution of the Gold Standard Gibson’s Paradox proves that gold is valued according to a constant real yield.

Why Gold Has A Real Return – The Definitive Gibson’s Paradox Solution – Introduction

This paper is a sub-section of a forth-coming paper that demonstrates how gold is valued globally as a function of a real yield that it obtains inherently. Thus, in terms of global purchasing power, gold is more than a real store of value, is sensitive to the global real after-tax intermediate and long term interest rate, and to changes in the expected fiat inflation rate. The author is a co-author of the 2005 Journal of Investing article: “The Price of Gold: A Global Required Yield Theory”.

How Gold Gets Its Real Yield

Fiat money itself is not thought of as an investment asset for the simple reason that it loses purchasing power at the rate of inflation. Fiat money-based investment assets pay a return in fiat money – stocks and bonds for example – and must return, in fiat money, more than inflation after taxes to provide a real return in the form of capital gains, dividends and interest. The quantity theory of money (QTM) and its equation of exchange form can be used to describe inflation and purchasing power.

MVt = PtT Formula (1)

Where M is the total amount of money in circulation on average in an economy over a period t;