4 ms·

> GOLD not only does well during times of intense inflation, it does very well. In the 1970s, gold rose twenty times over as the inflation rate soared to its pe

by tqi 3y ago

> GOLD not only does well during times of intense inflation, it does very well. In the 1970s, gold rose twenty times over as the inflation rate soared to its peak of 15% in 1980 Is this still true? As a layperson looking at the chart, it seems like gold has moved up and down a lot, but is more or less in the same place as it was 2 years ago.

jtc331 3y ago
It’s not true. And using the 70s as proof is either dishonest or lacking knowledge: gold rose in the 70s because an artificial pinning of its price was removed.
- jonhohle 3y ago
  Isn’t that the point, though? It’s a hedge against inflation, a low risk, static asset to keep in place of cash. In 1970 a Carolla would have cost about 40oz of gold and today it would cost about 20oz. A barrel of crude was ⅒oz, today 1/20th oz.
  - throw0101a 3y ago
    > It’s a hedge against inflation, a low risk, static asset to keep in place of cash. It is not a good hedge against inflation: * https://www.nber.org/papers/w18706 https://www.nber.org/papers/w18706 * https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3667789 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3667789 From Roy Jastram's The Golden Constant: The English and American Experience 1560 to 1976: > Andre Sharon, head of the international research department at Drexel Burnham, Inc., notes, “the value of gold essentially derives from its capacity to preserve real capital and purchasing power.”† I select this particular quotation because of the prestige of the organization and the position of the spokesman, but statements in this vein can be found in great numbers. They can be traced back for generations and in many countries. How can this proposition so contrary to statistical fact become so widely believed and quoted? Possibly because gold has preserved capital in cataclysmic cases it is easy to infer that it can be trusted to do the same in less severe circumstances. To extrapolate from gold’s protection in singular catastrophes to its use as a strategy against cyclical infation is an example of faulty inductive reasoning. * PDF: http://csinvesting.org/wp-content/uploads/2016/02/RoyJastram-TheGoldenConstant.pdf http://csinvesting.org/wp-content/uploads/2016/02/RoyJastram... * https://www.pwlcapital.com/will-gold-save-the-day/ https://www.pwlcapital.com/will-gold-save-the-day/
    - jonhohle 3y ago
      I listed two easily found examples of gold’s buying power increasing from 1970. It will and has always maintained value better than fiat. It’s never been about cyclical inflation, but about long term devaluing of floating currencies. I wouldn’t expect gold to be a hedge against currency that was pinned to the value gold. Weimar Deutschmarks, Venezuelan Bolivar, Mexican Pesos, Hungary, Zimbabwe, Yugoslavia, etc. etc. are a few examples in the last hundred years where it would have been better to hold gold than cash. Are productive investments going to be more profitable than gold? Absolutely. Gold is not a productive asset and will not produce anything. That’s not what it’s for. It’s specifically for not investing over long periods where a fiat cash position would lose about ⅓ of its buying power per decade (in terms of current US Federal Reserve Notes). Look at a chart of gold from 1970 to today and add a trend line from just the lows[0]. Even if you would have bought at the peak in 1980, the buying power of your gold would have been effectively unchanged (the dollar value would have tripled). At any other time, gold has handily beat cash. Any financial consultant is absolutely going to steer you away from gold because it can’t make them recurring revenue. It’s always going to do worse than the stock market over the long term. That’s not what gold is for. It’s an alternative to a long term cash position. I’m not saying put all money into gold, but having 1-10% of assets in physical gold is not any worse than most people’s much higher allocation in bonds. 0 - https://www.macrotrends.net/1333/historical-gold-prices-100-year-chart https://www.macrotrends.net/1333/historical-gold-prices-100-...
jonhohle 3y ago
Many people believe the price of gold is being artificially suppressed or is artificially lagging since it is not behaving the way it typically does. If it can no longer be kept low, it will probably move quickly to a true market price. Is that true? JP Morgan and Deutche Bank have been caught manipulating the price, but it would probably need to be the Fed to keep it suppressed for as long as it has been. They certainly have the motive, but no one has proven that they are doing it.
- andruby 3y ago
  Or: past performance is not a guarantee for future performance. Maybe gold and inflation are no longer as correlated as they used to be.
  - throw0101a 3y ago
    > Maybe gold and inflation are no longer as correlated as they used to be. Or maybe they were never correlated and people just assumed they did and never bothered looking at the data: * https://www.nber.org/papers/w18706 https://www.nber.org/papers/w18706 * https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3667789 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3667789
  - zo1 3y ago
    Or me with my tinfoil hat:Gold is correlated with real value and the inflation numbers don't reflect that because they're artificially suppressed. I.e. if gold looks flat growth wise to the dollar, maybe it's cause it actually went up in value but the dollar went down due to inflation.
- robbintt 3y ago
  I went to a tech presentation by Barrick and got the impression that gold price is set by their fixed costs and operation costs. If the price goes up they turn up their operations. I am sure this isn't a controlling factor as demand could outstrip their operation size. But it does set a soft ceiling when demand is low, and it is.

by tqi 3y ago

jtc331 3y ago

It’s not true. And using the 70s as proof is either dishonest or lacking knowledge: gold rose in the 70s because an artificial pinning of its price was removed.

jonhohle 3y ago
Isn’t that the point, though? It’s a hedge against inflation, a low risk, static asset to keep in place of cash. In 1970 a Carolla would have cost about 40oz of gold and today it would cost about 20oz. A barrel of crude was ⅒oz, today 1/20th oz.
- throw0101a 3y ago
  > It’s a hedge against inflation, a low risk, static asset to keep in place of cash. It is not a good hedge against inflation: * https://www.nber.org/papers/w18706 https://www.nber.org/papers/w18706 * https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3667789 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3667789 From Roy Jastram's The Golden Constant: The English and American Experience 1560 to 1976: > Andre Sharon, head of the international research department at Drexel Burnham, Inc., notes, “the value of gold essentially derives from its capacity to preserve real capital and purchasing power.”† I select this particular quotation because of the prestige of the organization and the position of the spokesman, but statements in this vein can be found in great numbers. They can be traced back for generations and in many countries. How can this proposition so contrary to statistical fact become so widely believed and quoted? Possibly because gold has preserved capital in cataclysmic cases it is easy to infer that it can be trusted to do the same in less severe circumstances. To extrapolate from gold’s protection in singular catastrophes to its use as a strategy against cyclical infation is an example of faulty inductive reasoning. * PDF: http://csinvesting.org/wp-content/uploads/2016/02/RoyJastram-TheGoldenConstant.pdf http://csinvesting.org/wp-content/uploads/2016/02/RoyJastram... * https://www.pwlcapital.com/will-gold-save-the-day/ https://www.pwlcapital.com/will-gold-save-the-day/
  - jonhohle 3y ago
    I listed two easily found examples of gold’s buying power increasing from 1970. It will and has always maintained value better than fiat. It’s never been about cyclical inflation, but about long term devaluing of floating currencies. I wouldn’t expect gold to be a hedge against currency that was pinned to the value gold. Weimar Deutschmarks, Venezuelan Bolivar, Mexican Pesos, Hungary, Zimbabwe, Yugoslavia, etc. etc. are a few examples in the last hundred years where it would have been better to hold gold than cash. Are productive investments going to be more profitable than gold? Absolutely. Gold is not a productive asset and will not produce anything. That’s not what it’s for. It’s specifically for not investing over long periods where a fiat cash position would lose about ⅓ of its buying power per decade (in terms of current US Federal Reserve Notes). Look at a chart of gold from 1970 to today and add a trend line from just the lows[0]. Even if you would have bought at the peak in 1980, the buying power of your gold would have been effectively unchanged (the dollar value would have tripled). At any other time, gold has handily beat cash. Any financial consultant is absolutely going to steer you away from gold because it can’t make them recurring revenue. It’s always going to do worse than the stock market over the long term. That’s not what gold is for. It’s an alternative to a long term cash position. I’m not saying put all money into gold, but having 1-10% of assets in physical gold is not any worse than most people’s much higher allocation in bonds. 0 - https://www.macrotrends.net/1333/historical-gold-prices-100-year-chart https://www.macrotrends.net/1333/historical-gold-prices-100-...

jonhohle 3y ago

Many people believe the price of gold is being artificially suppressed or is artificially lagging since it is not behaving the way it typically does. If it can no longer be kept low, it will probably move quickly to a true market price. Is that true? JP Morgan and Deutche Bank have been caught manipulating the price, but it would probably need to be the Fed to keep it suppressed for as long as it has been. They certainly have the motive, but no one has proven that they are doing it.

andruby 3y ago
Or: past performance is not a guarantee for future performance. Maybe gold and inflation are no longer as correlated as they used to be.
- throw0101a 3y ago
  > Maybe gold and inflation are no longer as correlated as they used to be. Or maybe they were never correlated and people just assumed they did and never bothered looking at the data: * https://www.nber.org/papers/w18706 https://www.nber.org/papers/w18706 * https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3667789 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3667789
- zo1 3y ago
  Or me with my tinfoil hat:Gold is correlated with real value and the inflation numbers don't reflect that because they're artificially suppressed. I.e. if gold looks flat growth wise to the dollar, maybe it's cause it actually went up in value but the dollar went down due to inflation.
robbintt 3y ago
I went to a tech presentation by Barrick and got the impression that gold price is set by their fixed costs and operation costs. If the price goes up they turn up their operations. I am sure this isn't a controlling factor as demand could outstrip their operation size. But it does set a soft ceiling when demand is low, and it is.