Monday, September 27, 2010

Inflation Adjusted Gold Prices

Adjusted for inflation, the current price of gold ($1,296) is 36.41% below the peak price of more than $2,000 per ounce (2010 dollars) in January of 1980. 



  1. Wenzel,

    I am really scratching my head on this one, and perhaps I am a bit more clueless than I ought to be, but:

    1.) What is the methodology for "inflation-adjustment"?
    2.) How is it applicable to gold?
    3.) Why shouldn't gold be the reference for inflation adjusting all other prices, if "gold is a hedge against inflation"?

  2. Just because gold is "often a good hedge against inflation," it doesn't always keep track with the overall price level.

    During part of the 1980s, the price of gold collapsed, this does not mean that prices in general collpased.

    Likewise, gold can climb higher than the inflation rate (That may be occurring now and I am coming out with a report why--in roughly a week)

    The price level and gold are two different things. Gold generally tracks inflation but not always.

  3. Wenzel,

    That doesn't make sense to me. If something is "often" X, then my guess is it is not actually X, but rather always Y, where the correlation with X and Y sometimes overlaps resulting in confusion.

  4. Gold dropped from just under 800 to just above 259 between ~1980 and ~1999. Do you think that was a period of dramatic deflation?

  5. Wenzel,

    No, I do not.

    My argument has been, all along, "gold does well when people doubt the government/fiat currency, poorly when people trust the government/fiat currency". Doesn't this relationship much more closely track the performance of gold over these varied periods than to say "Gold is sometimes an inflation hedge, sometimes a commodity, sometimes ignored"?

    Gold is money. So, it should act like it-- goes up when fiat money is in doubt, goes down when fiat money is being cheered.