In Gold We Trust

By TAN Kee Wee

(MediaCorp 938LIVE’s Money Talks, Thursday, 10 September 2009, 7.50 am and 7.20 pm)

In recent days, the price of gold has surged close to US$1,000 an ounce. To those holding cash, this has undermined their net worth.

That’s because since 1971, we can no longer convert our paper money into physical gold by simply requesting the gold from our banks or from the US Treasury. Because of this, any rise in the price of gold undermines our net worth.

The question is: are we better off in this world of paper money? Today, we shall try to see where we stand in terms of gold, since it is the only asset that has held its purchasing power throughout the ages.

For comparison purposes, we shall look at the salaries we received between 1980 and today. 1980 is a good year to start because that was when the price of gold surged, just like it has done this past year.

In 1980, the average price of gold was US$657 an ounce. This year, the average price of gold is around US$900 an ounce.

Using 1980 as the starting point is also appropriate because that was when the Singapore economy was transforming itself from a labour-intensive to a capital-intensive one.

In 1980, the average Singapore worker, which covers CEOs and cleaners, took home a salary of S$8,300 a year. This year, the average Singapore worker would take home an annual salary of S$48,000. In other words, our paper money salary has gone up about 5.7 times.

Now let’s see how we fare in terms of gold. In 1980, if we were to convert all our salary into gold, at the 1980 gold price, we would take home 5.9 ounces of gold. This year, if we were to convert all our salary into gold, at today’s gold price, we would take home 37 ounces of gold.

So between 1980 and this year, while our paper money salary has gone up by 5.7 times, in terms of gold, it has gone up higher, by 6.3 times.

This shows that the Singapore worker has improved his lot this past thirty years in the sense that he has received more gold. This cannot be said of the average American worker.

Over the same period, the American worker got his pay increased by 2.5 times in terms of cash. But in terms of gold, his pay increased by only 1.8 times. Go to 938LIVE.sg to download this scrip which includes the tables and charts. This will be clearer to you.

The reason why the average Singapore worker is better off is because, in the process of converting our Sing dollar salaries into physical gold, we have to take into account the exchange rate and the price of gold.

Between 1980 and today, the exchange rate has worked in our favour. In fact, in the past year or two, the amount of gold earned by the Singapore worker has exceeded that of the American worker.

Of course, the best year to take home our salaries in gold would be in 1999. That was when the price of gold dropped to US$255 an ounce. The Singapore worker would have taken home about 78 ounces of gold in 1999 compared to 37 ounces of gold this year.

To sum up, we are better off, in terms of gold salaries, between 1980 and today. But between 1999 and today, we are very much worse off. Going forward, it would be good if the Singapore dollar goes up. It would be better if the price of gold goes down. It would be best if we keep our jobs.

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Table 1: Yearly Earnings of Average US and S’pore Workers in Local Currencies

Table 2: Yearly Earnings of Average US and S’pore Workers in Gold

Chart Showing Amount of Gold US and Singapore Workers Earned (1979-2009)

(US workers in blue, S’pore workers in red) Click on graph for larger image

Table 3: Price of Gold and SGD-USD Exchange Rates

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