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Posts tagged with: "GOLDAMGBD228NLBM"

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Alternative money for transactions

What if gold or Bitcoin replaced the dollar?

What if U.S. retail prices were not denominated in U.S. dollars, but instead were denominated in gold or Bitcoin? Paying for a loaf of bread with gold wouldn’t be very practical, as you’d need a very small speck of the precious metal. But one can imagine a system of gold substitutes, such as notes giving you ownership of a fraction of an ounce of gold, thereby overcoming the small-change problem. With Bitcoin, it’d be much easier, as a virtual currency can be divided any way you want.

Now, let’s look at actual prices. FRED doesn’t have price data on just a loaf of bread, but it does have the consumer price index for cereals and bakery products, so let’s use that. The blue line shows the evolution of the U.S. dollar price of a basket of baked goods. The red line shows the price in gold, and the green line shows the price in Bitcoin. It’s apparent that the dollar price is much more stable and has slowly increased over time. The gold price has considerable fluctuations from month to month. While the gold price seems to have a tendency to decrease, this isn’t always true, which you can see if you enlarge the sample window. As for Bitcoin, the fluctuations are extreme, even when you restrict the sample period to the past year.

What’s behind the differences? The Fed’s mandate is to stabilize prices as expressed in U.S. dollars, and this is quite apparent in this graph. The Fed does this by adapting to changes in the demand for dollars. That isn’t possible with gold, as its supply is determined by worldwide mining success, which is outside of the control of any institution. The same applies to Bitcoin, with the additional constraint that mining success keeps dwindling.

How this graph was created: For line 1: Search for and select “cereal price cpi” and click on “Add to Graph.” (You can also paste the series ID, CUSR0000SAF111, directly in the search field.) From the “Edit Graph” menu, use the “Add Line” feature to again search for and select the same cereal price CPI series two more times. For line 2: Open the “Edit Line 2” tab, search for and add “Gold Fixing Price 10:30 a.m. (London Time)…” in the “Customize data” section or paste in the series ID (GOLDAMGBD228NLBM). Then apply formula a/b*1000. (Multiplying by 1000 helps place the line within a visible range.) Repeat this for line 3 by searching for and adding “Coinbase Bitcoin” (series ID CBBTCUSD). Finally, restrict the sample period to the past twenty years.

Suggested by Christian Zimmermann.

View on FRED, series used in this post: CBBTCUSD, CUSR0000SAF111, GOLDAMGBD228NLBM

All that glitters is not necessarily a good store of value

The evolution of precious and not-so-precious metal prices

The FRED team is busy adding new data almost every day, as new data are released almost every day. That includes the week between Christmas and the new year. Still, we found some time to create this FRED graph, which shows the prices of gold, copper, and nickel. You may have noticed the colors of the lines match the colors of their metals, thanks to FRED’s flexible graph formatting tool. Note also that we displayed the price of gold on a different scale, as it’s an order of magnitude or two higher than the others.

The prices of these metals, as is often the case with commodities, are quite volatile. There seems to be a connection between the price of copper and the price of nickel: Both, for example, are used as an alloy in the manufacture of coins. But the price of gold seems to follow its own laws. At any rate, none of these metals instills confidence that its price is certain to appreciate, despite what some advertisements claim. This lack of certainty becomes even more apparent when you adjust for inflation, as shown in the graph below.

How this graph was created: Search for “copper price” and open the monthly graph. From the “Edit Graph” section, open the “Add line” tab and search for “nickel price” and add it. Add another line by searching for and selecting the gold price. Finally, in the “Format” tab, set the axis for the gold price to the right and play with the color settings for each line. For the second graph, take the first graph and do this for each line: Add the non-seasonally adjusted CPI series (to match the non-seasonally adjusted metal price series) and apply formula a/b.

Suggested by Christian Zimmermann.

View on FRED, series used in this post: CPIAUCNS, GOLDAMGBD228NLBM, PCOPPUSDM, PNICKUSDM


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