Gold Rushes Don’t Always Pan Out
Oct 21 2009
In nominal terms gold just hit an all-time high and everyone seems focused on the fact that since 1999 gold prices have climbed from roughly $250 an ounce to well over $1,000. An equally important but overlooked fact is that after trading for the (then) record price of $850 an ounce in 1980, gold prices generally declined over the following 19 years.
In 1980 there was no shortage of “experts” predicting gold prices above $1,000. Inflation was running at double-digit rates and, as everybody knows, gold is a hedge against inflation so investing at least 15% of your portfolio in gold was considered to be a conservative strategy.
Now you could say that those experts are finally correct even if it took 29 years. Except for one fact: Inflation! Had gold prices in 1980 actually kept pace with inflation, an ounce of gold today would be worth $2,225. In other words, gold would have to sell at twice today’s price just to have broken even after adjusting for inflation.
Once again we have experts predicting higher gold prices. They might be right, especially if inflation returns. But remember that most of the “Forty-Niners” who hoped to strike it rich in the California Gold Rush ended up broke. Those who did get rich were, like Levi Strauss, the ones doing the selling.
