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The myth of gold being an inflation hedge
Posted on 8/18/09 at 8:23 am
Posted on 8/18/09 at 8:23 am
Why Gold? New Yorker, August 18, 2009
quote:
What is gold, after all? Strictly speaking, it’s a commodity, like oil, steel, or lead, albeit not an especially useful one.
To true believers—known as “gold bugs”—the idea that gold is a commodity is rank heresy. They prefer to think of gold as the planet’s most reliable currency, a stable, ineradicable source of wealth, whose value will endure no matter what comes to pass.
It’s hard to square this faith with what has happened to the price of gold in the past two decades. It has been a terrible investment. Even with the recent surge, it’s up zero per cent since 1988, while the S. & P. 500 has almost quadrupled.
Gold’s buying power has plummeted, too. In 1980, ten ounces of gold would have bought you a nice car. Today, it would get you a nice bike. (NOTE: So much for the inflation hedge idea!)
Gold investors like to pride themselves on being sober realists.
But if you invest in gold you’re basically betting that someday a greater fool will come along, who thinks gold is worth more than you do. You’re buying into a collective hallucination—exactly what those dot-com investors did in the late nineties.
One could say that gold is the biggest, most durable bubble in history. Someday, even this one may pop.
This post was edited on 8/18/09 at 8:57 am
2
Posted on 8/18/09 at 9:06 am to LSURussian
Yeah, the dollar is a much better inflation hedge than gold. Since the Fed was chartered the dollar has lost 96% of it's purchasing power.
Posted on 8/18/09 at 9:08 am to Rivers
quote:Irrelevant. Those dollars are the same dollars you have bought gold with. You just don't get it, do you?
Since the Fed was chartered the dollar has lost 96% of it's purchasing power.
Posted on 8/18/09 at 9:11 am to LSURussian
You don't get it.
When gold was called by FDR it was 'revalued' to ~ $35 oz. Now one can buy an oz of gold for about $950. That dollar is a sure fire inflation hedge!
Posted on 8/18/09 at 9:12 am to LSURussian
I have some physical gold. And its a hedge in case everything goes terribly awry. While the chance of that occurring is relatively remote, its a nice little insurance policy.
My position is rather small.
My position is rather small.
Posted on 8/18/09 at 9:12 am to MileHigh
A little insurance is better than none.
Posted on 8/18/09 at 9:17 am to MileHigh
quote:Most people do. I have some gold jewelry.
I have some physical gold.
I'm sure neither you nor I qualify as 'gold bugs,' MH.
Posted on 8/18/09 at 9:17 am to MileHigh
quote:
I have some physical gold. And its a hedge in case everything goes terribly awry. While the chance of that occurring is relatively remote, its a nice little insurance policy.
My position is rather small.
I just don't understand this logic. I guess you would be assuming things would go awry in the United States but not in other countries. Even if the whole world goes into a depression, the dollar would not lose all of its purchasing power, which is relative to the strength of other currencies.
Posted on 8/18/09 at 9:17 am to MileHigh
quote:
And its a hedge in case everything goes terribly awry.
What do you think you will be able to do with it, should that situation occur?
Posted on 8/18/09 at 9:18 am to Y.A. Tittle
quote:
What do you think you will be able to do with it, should that situation occur?
Posted on 8/18/09 at 9:19 am to Y.A. Tittle
quote:
What do you think you will be able to do with it, should that situation occur?
a) exchange it for the new currency, whatever it be.
b) leave the country, using the gold to bribe someone or to have some assets for a short period of time.
it makes me feel better, and actually I have about about 20% on it since I purchased it last year.
Posted on 8/18/09 at 9:22 am to Y.A. Tittle
'I just don't understand this logic. I guess you would be assuming things would go awry in the United States but not in other countries. Even if the whole world goes into a depression, the dollar would not lose all of its purchasing power, which is relative to the strength of other currencies.'
There have been over 8,000 fiat currencies in world history and every one of them have gone to zero value, usually due to bad governance.
Why do you think that the US Dollar or any other current fiat currency will avoid the fate of the 8,000 others? Is there something exceptional about the dollar?...and I know it's the world reserve currency, but that means little when governments do stupid stuff like our's is doing now. In fact being the world reserve currency is probably leading to the hubris being displayed by our government.
Posted on 8/18/09 at 9:23 am to Y.A. Tittle
'What do you think you will be able to do with it, should that situation occur?'
A damn sight more than one could do with totally worthless dollars.
Posted on 8/18/09 at 9:57 am to Rivers
quote:Again, irrelevant. Even YOU weren't born yet in 1933 when FDR signed the Gold Act so you did not buy gold then.....
When gold was called by FDR it was 'revalued' to ~ $35 oz. Now one can buy an oz of gold for about $950.
But, gold which YOU did buy in January, 1980 (since you have said on this board that you've bought gold every year since the 1960's), has lost more than half of its purchasing power.
Gold cost approximately $820/ounce in January, 1980. Since then, inflation has been 176.8% cumulative. Computing inflation from a date
Therefore, to keep up with inflation, gold today would have to be valued at $2,269.76 compared to the $939 it is selling for today.
Compare that to the S&P 500 index: it closed January 31, 1980 at 114.16. As of this minute, it is at 983.20, an increase of 861.25%. If the S&P had just equaled the cumulative inflation rate since January, 1980, it would be at 320 today.
Simply put (for obvious reasons), since January, 1980, the S&P 500 index has risen at a rate more than triple the rate of inflation while gold has lost more than half of its value during the same time period.
3 is a bigger number than 1/2, every time!
Gold has been a TERRIBLE inflation hedge!
Posted on 8/18/09 at 10:02 am to Rivers
quote:
There have been over 8,000 fiat currencies in world history and every one of them have gone to zero value, usually due to bad governance.
So basically "All currencies which have failed have failed!" Thanks for the insight.
Posted on 8/18/09 at 10:08 am to Cold Cous Cous
quote:
So basically "All currencies which have failed have failed!" Thanks for the insight.
Posted on 8/18/09 at 10:15 am to Cold Cous Cous
This is pure entertainment. We have a Fed-loving banker trying to discredit gold as a store of wealth, and using skewed statistics to do so (hey, let's pick 1980 of all years to judge the performance of gold against the USD!!).
About as disingenuous as fishing a turd out of a toilet and pretending it's a Snickers bar.
About as disingenuous as fishing a turd out of a toilet and pretending it's a Snickers bar.
Posted on 8/18/09 at 10:19 am to HarnessedInSlums
Then do your own analysis, jerkoff, if you know how to.
Just make sure it's a long-term analysis. Don't pick a month last year or the year before, etc.
Make it cover at least 25 years.
I picked 1980 simply because it is the most recent period in our history when we experiencing high inflation from Jimmy Carter's term in office. Gold bugs main argument for gold is it is an inflation hedge. If gold really is an inflation hedge, it should have performed better during and since that period. It failed miserably.
How much of the soft, pliable, yellow metal do you own?
ETA:
If you have been reading this board for any length of time, you would know that I have criticized the Fed plenty for their low-interest rate policies of the past few years prior to this recession.
And as for as me discrediting gold 'as a store of wealth' it really doesn't need my help. Gold is discredited everywhere except with the tin-foil hat wearing crowd who are waiting for the proverbial meteor to hit and with jewelers.
Come back when you have something to add to the discussion....
Just make sure it's a long-term analysis. Don't pick a month last year or the year before, etc.
Make it cover at least 25 years.
I picked 1980 simply because it is the most recent period in our history when we experiencing high inflation from Jimmy Carter's term in office. Gold bugs main argument for gold is it is an inflation hedge. If gold really is an inflation hedge, it should have performed better during and since that period. It failed miserably.
How much of the soft, pliable, yellow metal do you own?
ETA:
quote:
We have a Fed-loving banker trying to discredit gold as a store of wealth
If you have been reading this board for any length of time, you would know that I have criticized the Fed plenty for their low-interest rate policies of the past few years prior to this recession.
And as for as me discrediting gold 'as a store of wealth' it really doesn't need my help. Gold is discredited everywhere except with the tin-foil hat wearing crowd who are waiting for the proverbial meteor to hit and with jewelers.
Come back when you have something to add to the discussion....
This post was edited on 8/18/09 at 11:01 am
Posted on 8/18/09 at 10:28 am to LSURussian
quote:
Then do your own analysis, jerkoff, if you know how to.
I'd rather fart in a windstorm and run around in a circle trying to create a shite-air-vortex.
Investing in the stock market and investing in gold are two, completely different types of investments that can serve often different purposes under varying market conditions.
You know this and I know this. So why engage in brainless schmuckery?
Posted on 8/18/09 at 10:31 am to LSURussian
Hey WHOGAS...You're starting to sound a little hysterical.
Get a grip. What do you care if I am holding gold? I think you are a bit deranged. 'But, gold which YOU did buy in January, 1980 (since you have said on this board that you've bought gold every year since the 1960's), has lost more than half of its purchasing power.'
So what? You never took a bath on a stock? At any rate what about the $20 double eagles and cast gold that I bought every year prior to 80? The double eagles, even with little numismatic value, that I purchased in the 60s for about $60-68 are now selling for ~ $1,300. Not too bad for holding an insurance policy, eh?
'Again, irrelevant. Even YOU weren't born yet in 1933 when FDR signed the Gold Act so you did not buy gold then..... '
No, but my grandfather was and I inherited gold from the family, just as my kids will inherit gold from me, god willing.
And, you are cherry picking ONE YEAR! 1980. Try a comparison from 1999 to now, azz hat! From about $200 to $950...actually over $1000 for a time. Any moron can pick a time period that will offer an opportunity to make a meaningless point...even you.
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