Proponents of precious metals investing love to call gold an inflation hedge. Critics, including me, have pointed out that consumer prices rose incessantly from 1980 through 2000 while gold declined nominally from $850 to $250 per ounce.
That 70.58% two-decade-long decline was always brushed aside by metal lovers once gold made its run to over $1900 in August 2011. Gold bugs simply pointed to the huge recovery while crying “cherry picking” by using 1980’s previous all-time high as the starting point for measuring.
To combat that bias I’m working backwards from yesterday’s closing price of $1,395.30 and using constant 2013 dollars. Gold’s April 19, 2013 price per ounce is now equal to what it was in 1979 on an apples-to-apples comparison.
Someone holding gold continuously over the past 34 years has seen no real increase in purchasing power.
Gold’s performance looks much worse when you compare it using other metrics. The chart below lists just a few of the relevant comps from 1979 through 2011, the last year of currently available data.
Chairman Bernanke, Europe’s ECB and the Bank of Japan have all been busy printing up dollars, euros and yen. Gold declined over the past 20 months in what should have been the perfect environment for its price to go through the roof.
Shares of profitable companies appear to be a much better choice in trying to maintain purchasing power than all other alternatives. The worst long-term choice of all is fiat-based paper money which has been steadily inflated away.
About the author: