(Mike Maharrey, Money Metals News Service) It seems as if gold has been breaking records every week as bulls have run with wild abandon. However, last week, gold quietly hit a very significant milestone without much fanfare, taking out its all-time high in real terms.
For perspective, in October 2023, gold was at $1,830 an ounce. Today, the yellow metal is trading around $3,300 an ounce. That’s a 75 percent gain in just 18 months. Along the way, gold set 40 new all-time highs last year alone based on the afternoon London Bullion Market Association p.m. price.
But those records are in nominal terms. When we talk about an asset’s “real” price, we’re referring to the price adjusted for price inflation as measured by the CPI.
So, how has gold done on a “real” inflation-adjusted basis?
On April 22, gold cracked $3,500 at its intraday high. That broke the previous high of $3,493 in today’s dollar terms set on January 21, 1980, when the yellow metal hit an intra-day high of $850.
Gold also touched an inflation-adjusted high last fall. Of course, price inflation has increased since then, raising the value of $850 in 1980s dollars even higher.
Gold didn’t stay at that 1980 record level for very long. At the time, Federal Reserve Chairman Paul Volcker aggressively raised interest rates to battle price inflation. In February 1980, the Fed pushed interest rates to 15 percent, and in March drove them all the way up to 20 percent. (This is what a real inflation fight looks like.)
Gold quickly fell off the January 1980 high. By the end of the year, it was back below $600 an ounce in nominal terms, and it continued to trend downward for several years as Volcker’s inflation fight bore fruit.
Gold approached its real (inflation-adjusted) record high again in 2011 in the aftermath of the Great Recession and the Federal Reserve’s historic easy money policies in response to the downturn.
The fact that gold has traded below its 1980 real price high for decades doesn’t mean the yellow metal “hasn’t kept up with inflation,” as some people claim. That year was an anomaly. Through most periods, the price of gold has outpaced inflation as measured by the CPI and has served as an excellent inflation hedge.
In other words, if you bought gold virtually any time after 1980 and held it until today have been well ahead of inflation. And now, you’re on pace with price inflation even if you bought at the peak in 1980.
For instance, if you bought an ounce of gold in 2000, you paid around $285 an ounce, well below the 1980 high in both real and nominal terms. Since then, gold is up over 847 percent while the price inflation rate over that time comes in at around 81 percent.
Of course, the return on any investment depends on exactly when you buy and when you sell. If you happen to buy gold at the peak of a bull cycle and sell at the bottom of a bear run, you will likely lose money in both real and inflation-adjusted terms. There is always an inherent risk in investing. That means one can select arbitrary dates to “prove” that gold failed as an inflation hedge. That’s why one must always look at longer trends.
Mike Maharrey is a journalist and market analyst for Money Metals with over a decade of experience in precious metals. He holds a BS in accounting from the University of Kentucky and a BA in journalism from the University of South Florida.
