I wrote this public page for my friends who work in financial advisory or planning roles and wealth management. In speaking with them over the last few years, all of them have felt annoyed by trying to explain to clients that $1,000,000.00 does not carry the weight that it once did.

I hope this public research page makes your job easier, especially since this isn't coming from you, but someone who does research for a living.

The Dollar Makes A Terrible Numeraire

People talk about $1,000,000.00 as if the value has stayed the same over the years. Let's compare $1 million from 2000 to today using a more accurate numeraire that has historically been used.

Gold.

At the beginning of 2000 (January), $1 million dollars purchased a little over 3,521 troy ounces of gold (gold's price was $284 per troy ounce).

At the beginning of 2023 (this year), $1 million dollars purchased almost 527 troy ounces of gold (gold's price is $1,898 per troy ounce).

This means that if we take the amount of gold you could purchase in 2000 (3,521 troy ounces) and evaluate that amount in dollars today, then you would have $6,682,858.00 in today's dollars!

This highlights one (of many) problems with people talking about the word "millionaire" in the context of US dollars. That is not the same today as it was in 2000. What I highlight above this answers why $1 million doesn't feel like much. $1 million is not much money; it's actually like having about $160,000 in 2000, which would have been a good amount of money, but nothing like $1 million in 2000.

If you go back in time to January 1971 when gold was priced at $35 per troy ounce (gold standard era), $1 million dollars purchased over 28,571 troy ounces of gold. That would equal a value of $54,227,758.00 in today's dollars.

Notice how the dollar makes a poor numeraire. In the United States, the dollar is legal tender, which is why it is used as the numeraire.

But for financial advisors, planners, and wealth management, this numeraire can cause headaches because a person born in 1990 may think that $1 million is a lot, but by the time that person turns 40 (2030), $1 million dollars is not much money.

Below I provide two reasons why gold tends to be a better numeraire over time. I will note to financial advisors, planners and wealth management talent that on a given year or two, gold may not be useful as a numeraire as short term fluctuations can happen. However, as we see with comparing $1 million in 2000 to $1 million in 2023 using gold as the numeraire, over longer periods of time, we may be able to answer the underlying why.

Note that gold as a numeraire is not the same thing as gold as an investment or speculative instrument. None of this is written from the view of investing, but from the view of what you measure by.

Gold As A Unit of Energy

I suggest that everyone who can visit a gold mine, do this a mental exercise to calculate the labor involved. What you see quickly involves energy. Human energy such as mental and physical work, extraction and transportation energy, in some cases, refining energy, etc.

What you see is how gold's price can often reflect energy costs plus the survivability of some gold businesses (mining, refining, jewelry, etc). Price and value do not always equal each other and this difference would involve a different discussion, but over time, I've seen the price of gold reflect the energy demands from gold.

In fact, in some cases (I'm thinking about what Frank Guistra said about Rob McEwen in the 1990s), it makes little sense for gold producers to produce gold at the low price. Rarely do we see this discipline with gold producers, but that highlights periods where the price and underlying costs are misaligned.

Gold As A Unit of Innovation

Human's desire for gold means that we crave new ways of getting gold faster and cheaper. We also crave finding new ways of making gold feel more abundant. The amount of gold that we've extracted today significantly exceeds the amount of gold humans had extracted by the end of the 1800s.

Gold's price frequently reflects periods of innovation (when we are not on a gold standard). During significant innovation we see gold's price - along with many other prices - falling. The inverse happens during periods of inflation and stagnation. This also explains why we see significant innovations during gold standard periods. Gold limits the money supply, but that actually forces us to find new ways to do the same thing.

Gold As A Unit of Risk

While this generally only applies to sovereigns, physical gold is immune to cyber-attacks, quantum computing, and other digital risks. Unlike agriculture, gold does not reproduce, thus it carries risk in that what you have, you have. But abundant agriculture requires significant physical security while gold's density allows small spaces to store significant values (and transport when needed).

Most people generally think of money in digital terms. This works provided that they are able to secure their digital resources. However, the digital world may someday be viewed as far less secure than we thought. This is one unstated reason why sovereigns may hold some gold.

Is $1 Million Rich?