While gold is generally seen as the best hedge against inflation, a report by author Kelsey Williams now casts doubt on this long-standing assertion. In the report, Williams argues that the current price of gold of about $1,810 an ounce is well below the commodity’s average price in 1980.
Gold price hike lags behind inflation
Williams averages indicate that the rate of increase in the value of the yellow metal over the past 41 years has lagged behind the rate of inflation. In a report published by FX Empire, the author used 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 was on an upward trajectory from $664 an ounce recorded in February 1980 to $1,825 by August 2011. However, when adjusted for inflation, it is the February 1980 price that is rising faster , to $2,309, compared to the August 2011 price fixed at $2,220.
A similar trend was also observed in August 2020 when gold hit an all-time high of $2,070. For example, the same table shows that at one point when the price in August was $1, 1970, the inflation-adjusted price of the commodity was actually $2,078.
Why is gold declining in real terms?
This illustration by Williams may mean that investors who have taken traditional positions in gold are not actually getting the best protection. The author himself presents his thoughts on why the price of gold has fallen in real terms. He said:
Since the rise in the price of gold over time is a reflection of the continued loss in purchasing power of the US dollar, it cannot be expected to exceed previous price peaks based on the rate of inflation. By the same token, it is not unreasonable to expect peaks to coincide. The only factor likely to limit the price of gold from matching previous price peaks is that the overall effects of Fed inflation continue to weigh less and less.
Although the author does not suggest that there is a better alternative store of gold for gold, the report shows that gold is not commensurate with the rate of deterioration of the dollar.
Do you agree with what Williams said about the price of gold? Tell us what you think in the comments section below.
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