Tuesday, May 31, 2011

Quick Note: Agricultural Chemistry & Gold

Over the past decade fertilizer prices have generally increased when priced in dollars as can be seen in Figure 1.
Figure 1: USDA fertilizer prices in US dollars from 1995-2011. 
If you price fertilizer, an essential resource, in gold (real money) you come to a different conclusion as can be seen in Figure 2. 
Figure 2: USDA fertilizer prices in ounces of gold from 1995-2011. It is assumed that the 2011 average gold price is $1600/oz.
When priced in gold, fertilizer has not been increasing. It has oscillated somewhat, but over the past decade and a half it has generally been dropping when priced in gold. Note that the spike in 2001 was due to gold reaching a multidecade low as economies faltered and central banks sold gold into the market (which was obviously a blunder). The point should be quite obvious: The price of an essential resource (fertilizer) is not increasing when priced in gold, rather, the value of the US dollar is decreasing!

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