While gold is widely viewed as the best hedge against inflation, a report by author Kelsey Williams now questions this long-held claim. In the report, Williams argues that the current gold price of around $1,810 per ounce is much lower than the commodity’s average price in 1980.
Rising gold prices lag behind inflation
Williams’ claims suggest that the rate of increase in the value of the yellow metal over the past 41 years has lagged behind inflation. In a report that was published by FX Empire, the author uses nominal and inflation-adjusted gold prices to illustrate this point.
For example, according to a table shared in the report, the nominal price of gold has trended upward from $ 664 per ounce recorded in February 1980 to $ 1,825 in August 2011. However, when adjusted for inflation, it is the February 1980 price that rises the fastest, to $2,309, compared to the August 2011 price which is pegged at $2,220.
A similar trend is also seen in August 2020 when gold hit its all-time high of $ 2,070. For instance, the same table shows that at one point when the price in August was $1,970, the commodity’s inflation-adjusted price is in fact $2,078.
Why gold is falling in real terms
This Williams illustration could mean that investors who have traditionally taken positions in gold are in fact not getting the best protection. The author himself offers his thoughts on why the price of gold has been declining in real terms. He said:
Since the higher price of gold over time is a reflection of the continued loss of purchasing power of the US dollar, it cannot be expected to exceed previous price peaks over a period of time. inflation-adjusted basis. By the same token, it is not unreasonable to expect it to match the peaks. The only factor that is likely limiting the price of gold to match previous price peaks is that the overall effects of Federal Reserve inflation continue to have less and less impact.
Although the author does not suggest a better alternative store of value to gold, the report does show that gold has not matched the rate of the dollar’s deterioration.
