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Normalizing to the price of gold is a good idea. Unfortunately, the price of gold is being manipulated by US and other central banks. If they allowed the gold price to rise as fast as _real_ inflation, people would freak out — and their little scam would fail.
If we could find an asset that is truly constant-value and has a price that “floats” against the dollar, then we could measure the _real_ inflation rate. Sadly, I cannot think of any such thing. Platinum’s price is obviously being manipulated just like gold (just look at the historic price curves). Two metals that might have escaped manipulation so far are Palladium and Rhodium.
Palladium resists corrosion like Platinum, but there is a lot more of it around. The mining rate could be adjusted to balance the price, so stock to flow predicts that it isn’t a good basis for a standard.
Surprisingly, Rhodium is the “truly” most precious metal in the world, even though most people say, incorrectly, that position is held by gold. Rhodium (Rh) is also in the class of Platinum-like metals. Rh is extremely resistant to corrosion just like Gold, and makes the option of a Rh-standard seem interesting.
The Rhodium flow is extremely low b/c it is very hard to mine. Basically, you have to mine Platinum and then throw away 90% of the ore (the Platinum part) and extract Rhodium from the rest. The downside of Rh is that it has very important industrial metal for catalytic converters, so the Rh is used up (i.e. destroyed) by industry faster than it can be mined. So there is no Rh stock, and it is a poor candidate for a monetary standard.
If anyone can suggest a commodity that has a stable real value that is not manipulated by the central bank, and has a high stock to flow, then I’d be happy to hear about it.
I don’t have sufficient motivation to look up the references I used to write this message.
