As some people who knock gold as an investment point out, "You can’t eat gold." But you can eat chocolate – so what’s the gold/chocolate ratio look like these days? No, I’m not talking about chocolate as cocoa the commodity, but chocolate as an actual product – specifically a Hershey Bar. You see, I found this set of data on food prices, with a list of prices for a Hershey (HSY) bar going back 100 years. It’s interesting, not just because it gives us an idea of how gold may tend to track inflation, but also because it teaches us that adjusting prices for inflation isn’t so easy, especially when you go back many decades. This data is somewhat anecdotal, but I suspect it’s fairly valid over the long term. So here’s the gold/chocolate ratio. It measures how many Hershey bars you could buy with 1/100 of an ounce of gold. The problem with measuring prices is that the products themselves change. Hershey bars haven’t always been the same size. When the price of input commodities change, manufacturers might reduce the size of the product, or in some cases, increase the price and the size. For example, here’s a chart showing both the price of the Hershey bar and the weight of the bar for that price. These days, it’s pretty easy to adjust product packaging for inflation, but in the olden days it wasn’t so easy. The 5-cent price for a Hershey bar was a standard from 1920 to 1968, but the notion of increasing the price to 6 cents probably seemed unthinkable, so the the weight of the bar fluctuated. Now here’s a look at the gold/chocolate ratio based on the price of one ounce of Hershey bar chocolate, not the candy bar itself. (That’s troy ounces for gold and avoirdupois ounces for the chocolate of course) What’s the true cost of living? When you go back through historical data on prices, you have to make a decision about whether to use the cost of a product as purchased or the cost per standard unit. Given that customs and habits change, I don’t think there’s an easy answer to this question. That’s why I’m okay with inflation-adjusted data going back maybe 20 years, but I don’t think it’s very reliable when you go back generations. It could be high, low, or even irrrelevant. Any cost of living index should compare apples to apples (or chocolate to chocolate), but if preferences change, it’s not all that useful. Consider this: Pepsi (PEP) introduced a new 12-ounce bottle of its cola in 1936 with the jingle, “Pepsi Cola hits the spot/12 full ounces that’s a lot." Twelve ounces is a lot? It sure was. A standard-sized bottle of Coca Cola (KO) at the time was only 6 ounces (and probably only 80 calories) Today, it’s a different story. A 6 ounce bottle of Coke? You hardly see those anymore. And with more choices (sugar free, caffeine free, etc.), it becomes even more difficult to peg prices to what the true “cost of living” may be. And there’s also a substitution effect. If a major disease were to wipe out the coffee crop, many people might just switch to tea – or give up caffeine altogether. So while it’s interesting to see how gold has kept up with chocolate, it may not mean much to you if you prefer vanilla. I don’t happen to have any gold/vanilla data, but here are some charts you can review over breakfast A great start to your day: The gold/corn flakes ratio A healthy breakfast is important; And good old Kellogg’s (K) Corn Flakes have also been around for more than 100 years, too. So using data from that same site where I got the prices of Hershey bars, here’s a look at the the price of corn flakes in terms of gold, both the price of the product and based on weight (in this case pounds): You can see that on a per package and on a per-pound basis, prices can appear very different. Also consider that back in 1908, the whole notion of having toasted flakes of corn for breakfast was a pretty newfangled idea. So should breakfast cereal be considered a part of the “cost of living” 100 years ago? Should chocolate bars? I guess that’s up to how you want to interpret the data. Once again, the data for the price of Hershey bars and Kellogg’s Corn Flakes might not be valid for any specific year, but over the long term the chart seems to make sense – and they show that owning gold might make sense, too – at least in terms of chocolate and cereal. Disclosure: I am long GLD. This article is tagged with: The Macro View, Gold & Precious Metals, United States

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