We watch gold's purchasing power of global & US per capita commodity use
April 22, 2024
Key Observations:
An old Wall Street axiom says that the price of an ounce of gold will tend to equal the price of a men's suit.
There is ample evidence that this rule of thumb has been true in the past and is still true today.
This fact is remarkable enough in the current instance given that no one wears suits anymore. More instructively, this durable mapping of financial value to material price—a direct translation of purchasing power—can guide futures trading.
Below we show how many days of U.S. gasoline use per capita could have been purchased with a single ounce of gold in each of six years. In 2019, the average American could have bought 449 days of gasoline use at the annual average GC1 price. During the pandemic, when policy-imposed lockdowns stifled travel, this figure surged to 800 days. Since then, the gold price has been consistent with U.S. per capita gasoline consumption between 525 and 575 days.
What does this mean? It means the retail gasoline price is likely still too low relative to the inflation genies released in 2020 and 2021. Simply to return to an equilibrium value of 450 days (by this chart's logic) would require a U.S. retail gasoline price about $1 per gallon above the current level. Whether that happens or not, the data say mogas price risk biases toward ~20% price gains or more.
Source: AAA, Bloomberg, EIA, World Bank, Blacklight Research. Note: chart uses annual figures for U.S. gasoline consumption, U.S. population, and average gold price (GC1). At the current price for spot gold ($2383, Apr 22), a return to the 2019 average (449 days) would require a U.S. average pump price (regular grade) of $4.76 per gallon. The reported U.S. daily average, regular grade, is $3.67 per gallon as of 20-Apr-2024, according to AAA.
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