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another perspective on the price of gold
secondrepublic
Posts: 2,619 ✭✭✭
It's interesting how we keep hearing that gold is hitting "record highs."
In reality gold is still only about 1/2 way back to its all time high price, inflation-adjusted. Gold hit $850 back in early 1980. According to the government's own statistics, $850 back then was the equivalent of over $2200 today. Link to inflation calcuator. In reality, experience shows that $850 back then was probably more like $3000 or $4000 today.
Think about this in comparison to the Dow Jones Industrial average. When the Dow fell to 7,000 in March 2009, that was also about 50% below its all time high of 14,000 reached in July 2007. Yet people were talking about Dow 7,000 as a huge buying opportunity.
Is gold at its current price levels analogous to Dow 7,000 back in March? It's interesting to think about.
In reality gold is still only about 1/2 way back to its all time high price, inflation-adjusted. Gold hit $850 back in early 1980. According to the government's own statistics, $850 back then was the equivalent of over $2200 today. Link to inflation calcuator. In reality, experience shows that $850 back then was probably more like $3000 or $4000 today.
Think about this in comparison to the Dow Jones Industrial average. When the Dow fell to 7,000 in March 2009, that was also about 50% below its all time high of 14,000 reached in July 2007. Yet people were talking about Dow 7,000 as a huge buying opportunity.
Is gold at its current price levels analogous to Dow 7,000 back in March? It's interesting to think about.
"Men who had never shown any ability to make or increase fortunes for themselves abounded in brilliant plans for creating and increasing wealth for the country at large." Fiat Money Inflation in France, Andrew Dickson White (1912)
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People like to point out that buying gold at $850 back in 1980 and holding it for 25 years until some arbitrary price point that "proves" how bad an investment gold "might have been" all that time. That type of assertion makes me crazy because it's so dumb.
I could have bought $1,000 of Microsoft's stock when it was first issued and now I'd be a multimillionaire. Very few people did that either. In most situations, people have various alternatives and choose one or the other, but rarely do they make a buy at the extreme low and then sell at the extreme peak. Furthermore if they are so good as to actually did make such a purchase, they rarely do it with a big enough pile of cash that it ultimately turns into a huge mountain of cash.
But back to your point - we get all kinds of biased information from sources that all have a vested interest in keeping stocks up and gold down. The inflation factor is real, and is usually ignored because of all sorts of reasons. In that light, gold is indeed still priced at a low level. The central banks and fiat currency-loving governements still haven't succeeded in destroying the perception that gold is in fact real money.
In fact, the perception does seem to be swinging in gold's favor at this point. Since the pricing in any market is largely based upon perceptions, I'd say that gold still has a ways to run, just to become fairly-valued. And since most appreciating assets eventually overshoot their fair value, I'd also say that gold will at some point become overbought on speculation and at that point it may well be going parabolic. That happened in 1980, and I expect something similar.
What's different now are the national and geopolitical ramifications. Before I ever liquidate my pms, I'll want to be pretty sure what it is that I'm buying back into.
I knew it would happen.
Since the pricing in any market is largely based upon perceptions, I'd say that gold still has a ways to run, just to become fairly-valued. And since most appreciating assets eventually overshoot their fair value, I'd also say that gold will at some point become overbought on speculation and at that point it may well be going parabolic. That happened in 1980, and I expect something similar.
A great point. there is the old saying that "there is no reality", when people start to disregard fundamentals, or mis read them or not pay any attention to them at all perception rules the market, and I think the popular perception of gold right now will push it higher.
The 1980 CPI did not use any of the following gimmicks:
-quality factors
-substitutional effects
-hedonics
-geometric weighting of components
-tracking imaginery rental price changes on primary residences rather than the price of homes itself.
roadrunner
Now, if the market turns and that highly-leveraged deal goes to zero, and the asset that they have on their books is valued at $100,000,000 but cannot be sold because it is worth less than zero it is now allowed to stay on the books at $100,000,000 - courtesy of the change in accounting rules allowed by the FASB.
So, the bankers get to keep their high pay, their bonuses, and their jobs while having just lost it all, and nobody has to even know what happened because there is *NO* accountability left. The well-heeled shareholders don't lose their equity for making a bad investment in a poorly-run bank. The bank stays in business when they should have been ridden out of town on a rail, and the toxic asset still sits there on the books as an asset instead of a liability, so that new investors and bank clients are none the wiser. That is repugnant.
In some circles, that might have been considered accounting fraud - a major criminal offense because of its magnitude. Now it's called a new accounting standard. If that doesn't stink of deteriorating integrity in the system, then nothing does.
Now, lets get back to perceptions. Once people see enough of this type of crap taking place in the banks and in the public sector, there is no rational reason to believe in anything that the banks or the government puts out. That's why gold is rallying and will continue to rally for some time. The perception has less to do with gold than it does with the integrity of the government and banks which print that dollar.
Let's remember that NOTHING has changed. The shadow banking system is still happily doing deals with no oversight and the obscene leveraged deals are still taking place, under the noses of the regulators and Timmy the Tax Cheat (Remember him? He's the chief tax enforcement officer in the U.S., who has no problem taking your house and assets if you don't pay your taxes). What else is there to know?
I knew it would happen.
to protect agains runaway inflation or a total economic collapse.
Depending upon when you started collecting gold, it might
appear that you either made money or lost money. However,
that is not the reason you bought the gold.
One buys life insurance , not in the belief that they are going to make a profit,
but rather to replace lost income if they pass away. In the same vein, gold is the
insurance against calamity, for the Nation and its economic system. 70 years ago, it
took the same amount of gold to buy a car or a suit of cloths as it does today. That
is your insurance policy for survival.
Camelot
This is the new capitalism......making "something" out of nothing.
roadrunner
when you put today's prices in relation to inflation and inflation adjusted prices, thats the orange.
So....
yes, gold is hitting record high prices --- true.
on an inflation adjusted basis, gold has not kept pace with overall prices in the economy -- also true.
www.AlanBestBuys.com
www.VegasBestBuys.com
Compares to the now 2009.
Like comparing a grape to a water melon.
<< <i>I think the OP is mixing apples and oranges. >>
MoneyLA, my point is that gold hasn't yet achieved any kind of record in inflation-adjusted terms. It's not actually hitting "record high prices" (your words) in any meaningful sense.
Let me give you a quick analogy. A while back there was an article in the paper about a couple living in the Detroit area who had purchased their home for $15,000 something like 40 years ago. Today it's worth $25,000. You could call the current price a "high" compared with where it was 40 years ago. But you can immediately see the problem with that argument.
Jmski and Roadrunner, I agree with the point about using average valuations from that period rather than the brief $850 spike. Even using a $550 figures from the 1980 time period, however, we're still below gold's prices from that period, using the government's own figures.
What I find interesting is that gold has spiked without inflation actually appearing yet in the economy in the last year or two. It's all expectations.
you can have a "record price" without having an "inflation adjusted record price."
yes, it's a matter of semantics. but gold has been at record high prices, whether its inflation adjusted or not.
but if you are looking for "inflation adjusted prices" then you are correct, gold has not reached inflation adjusted record prices.
again, its apples and oranges.
www.AlanBestBuys.com
www.VegasBestBuys.com