Wednesday, July 20, 2011

Wage/Gold Ounce Ratio - Australia

In the comments section on Macro Business earlier today there was a suggestion to draw a chart showing the price of Gold relative to wages in Australia (after Macro Business published my charts showing Australian houses priced in Gold/Silver). With some time on my hands this evening I decided to see what the results were.

I couldn’t find a single data set which provided Australian wage data that extended over more than around 20 years, so I have spliced together two different sets of data before graphing them (they were relatively in sync). From 1972 to 1994 I have used the total (weekly) full time average earnings (for an adult) from the RBA (LINK, see item 4.18) and for the period 1995 to 2010 I have used the total (weekly) earnings for a full time adult from the ABS (LINK, see Table 3).

The AUD price of Gold was achieved by averaging monthly figures (to get an average price for the year) provided in a spreadsheet by the World Gold Council (LINK).

The chart simply shows the number of Gold ounces the average weekly wage would buy (technically it would be a fair bit less after tax and living expenses!):

CLICK CHART TO ENLARGE

This chart shows the last 40 years, but how expensive was Gold relative to wages before that?

Here is some information from the ABS on wages and the Gold price in 1901:

In 1901, the average weekly wage for an adult male was about $4.35 for a working week of almost 50 hours, which after inflation equates to $217.50. However, wages have grown much faster than inflation, with the average weekly ordinary time earnings for adult males in May 2000 being about $830.00 for around 37 hours work, in far better conditions.

The price of gold has often been used as a measure of inflation. At Federation, the price of gold was $8.50 an ounce, or $425.00 in today's money. The actual price of gold in 1999-2000 averaged about $460.00 an ounce, showing that it has generally maintained pace with inflation. ABS

While the ABS has shown that Gold has kept up with the pace of inflation, it’s not necessarily a good tool to use as an inflation hedge unless held over very long periods of time. The 30 year bear market after the last nominal peak in 1980 to 2000 is proof of that.

Based on the above figures from the ABS the Wage/Ounce ratio was around .51 ($4.35 wage / $8.50 oz) in 1901.

20 years later and the ratio had changed quite significantly.
In 1919, Billy Hughes appointed a commission to reconsider the basic wage of the worker - a family with three children needed £5 16s which was 30s more than the current minimum wage. For most of the 1920s, the average wage for an Australian worker was £9 30s. Skwirk
At this time the price of Gold was fixed in USD at $20.67 an ounce. In 1920 the Pound was valued at USD$3.66, so in USD an Australian weekly wage was around $38.43 and bought 1.86 ounces of Gold.

To get back to the .42 ratio seen in 1980 (remembering that is with the price of Gold averaged over the year) we would have to see Gold at AUD$3200 and obviously even higher assuming wages rose while Gold climbed to that level.

Will we see the ratio fall back to the level seen in 1980? What are your thoughts?


BB.

For a free gram of Gold signup and trade metals on BullionVault.com (CLICK ME).

7 comments:

  1. "In 1901, the average weekly wage for an adult male was about $4.35"

    "At Federation, the price of gold was $8.50 an ounce"

    Not sure how they have managed the conversion from pounds to dollars but take that as given, in 1901 the pound was a gold redeemable note issued by the Treasury, which means the pound was 'as good as gold'.

    Thus the average weekly wage was half an ounce of gold or today $750, or about $40000 per year.

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  2. So it seems that Gold has largely traded a range of around half to 2 ounces per the average weekly wage over the last 100+ years... it's interesting to know, will it continue similarly for the next 100 years?

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  3. Gold is the standard. The 'moneyness' of gold cannot be annulled by decree of government. That would be tantamount to declaring them gods.

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  4. we could see such a return to that. However its complex to estimate because 1) productivity has increased and 2) we are a more service based economy (from the GDP perspective). I feel that the dollar is higher because of our role in commodities, and so while we may be worth less in terms of manufacture and value output our selling of our soil keeps the $ value high

    but what would I know?

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  5. JMD, I think there are quite a few people today getting about $40K per year

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  6. BB, you got me thinking more on that one. I hope you don't mind me using your data (source credited of course).

    http://cjeastwd.blogspot.com/2011/07/gold-wages-and-houses.html

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  7. No worries at all obakesan, was interesting to see them over overlayed.

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