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the gold price serves as an independent yardstick for the level of real inflation. it defeats the purpose to 'adjust for inflation'. 'adjusting for inflation,

the gold price serves as an independent yardstick for the level of real inflation. it defeats the purpose to 'adjust for inflation'. 'adjusting for inflation, prices have been remarkably stable for the past century'

vel0city 3y ago
> for the level of real inflation I'm not normally doing much business in gold, the value of gold compared to the dollar is nearly meaningless to me. I do often buy things like food and energy. To me the value of the dollar compared to a gallon of gas or a plate of food or a kWh of electricity is the "real" inflation. The value of gold isn't "real" to me or most consumers.
- deleted 3y ago
  [deleted]
- fatherzine 3y ago
  prices, of all goods, inflate exponentially the relative value of specific goods fluctuates within a small constant in the long run, the exponential dominates the linear ---- thus the price of gold is a yardstick of the exponential inflation of prices, irrespective of the relative fluctuations of gold vs food vs energy
  - AnimalMuppet 3y ago
    In an economy, gold is just one more good. Sure, we could use it as an inflation index. Or we could use gasoline, or new cars, or eggs, or any of a million other things. Why should we use gold as opposed to all those other things? Or, here's an idea, maybe we should use a weighted index of several of those things as a measure, in order to prevent misleading data from the fluctuations in the price of any one item?
    - vel0city 3y ago
      Hey, that idea sounds really great. We could create some normalized basket of goods consumers normally buy. Then we could chart that basket as some kind of index of consumer prices. Nah. Who would do that. We can just look at the price of gold, that's all that really matters.
      - nine_k 3y ago
        Peruse Purchasing Power Parity stats for that.
    - fatherzine 3y ago
      Exactly. Use gasoline instead. See e.g https://www.macrotrends.net/1380/gold-to-oil-ratio-historical-chart https://www.macrotrends.net/1380/gold-to-oil-ratio-historica.... Over 80 years (since 1946), the ratio held stable within 10-40 range, with a few brief spikes. The variance from the average held in a band [-2x, 2x], with a few brief spikes of ~ +-4x. See also e.g. https://www.creditdonkey.com/gas-price-history.html https://www.creditdonkey.com/gas-price-history.html for the raw price of gasoline, exponentially shaped. The increase over 80 years (since 1946, to match the ratio dataset) is 15x. Extra wrinkle. The exponent of the exponential is not quite constant over time, currency can debase much faster than one would naively expect by extrapolating historical trends. Edit. For completness, the BLS inflation index tracks a price inflation from 1946 to 2023 of, guess what, 15x. https://www.in2013dollars.com/us/inflation/1946 https://www.in2013dollars.com/us/inflation/1946
    - RetroTechie 3y ago
      > Or, here's an idea, maybe we should use a weighted index of several of those things as a measure That's done already. More useful: such index as a ratio of wages. Say, [price of standardized basket of commodities] / minimum wage. That would tell you how many # of paid work needed to (for example) fill a shopping cart with a week's worth of food + heating / powering one's home over that time. ("minimum wage" = applies to folks scraping by in low-paid jobs. Higher earners are living the good life anyway, imho).
      - 3y ago
  - mberning 3y ago
    That is just not true. Inflation is not an immutable law of nature. In fact, we should expect to see the prices of certain commodities go down as technological advances drive efficiency and productivity. And in fact many times in the past we have seen the price of food, for example, go down relative to other expenditures.
    - fatherzine 3y ago
      inflation is emergent of interest. interest is multiplicative, which compounds into an exponential. sadly i am no boltzmann, so i can't provide a formal derivation -- challenge for the mathematically gifted amongst us.
  - vel0city 3y ago
    The three lines above the last don't do anything to say why you'd want to use the price of gold for that yardstick. And once again with it being so detached from the actual reality of most consumers it seems to be a pretty poor one. In fact, the ending of "irrespective of the relative fluctuations of gold vs food vs energy" kind of alludes to its value being radically detached from things people actually care about. If the fluctuations of USD / Gold are so detached from things people actually care about, it seems like it is a worthless yardstick. And here's the real question. If the price of gas and the price of food stays the same but gold goes to $9,000/oz, did my life change? No, not really. If the other prices stay the same but gold goes to $20/oz, did my life change? No. If gas goes to $50/gal, did my life change? Radically. If (index of food) goes 10x higher, did my life change? Radically. Which is the "real" inflation again?
madsbuch 3y ago
I flatiron is a relative term. yes, if you define gold as the unit of value, then it can not inflate or deflate. normally, when we talk about inflation. real value is the yardstick. ie. something more akin to the big Mac index.
viknesh 3y ago
The reasoning is correct but the conclusion is backwards IMO. You should "adjust for inflation" (using other measures for inflation) to examine the current price of gold. If gold is still expensive, either the inflation adjustments are incorrect, gold is mispriced, or external force is driving demand for gold. Put another way, because gold is an "independent yardstick" for inflation, you have to "adjust for inflation" to draw any conclusions about the current price of gold.
grotorea 3y ago
Doesn't it make much more sense to use the prices for usable goods and services as the yardstick? Gold is supposed to not lose value to inflation but that's not a proven rule is it?

vel0city 3y ago

> for the level of real inflation I'm not normally doing much business in gold, the value of gold compared to the dollar is nearly meaningless to me. I do often buy things like food and energy. To me the value of the dollar compared to a gallon of gas or a plate of food or a kWh of electricity is the "real" inflation. The value of gold isn't "real" to me or most consumers.

deleted 3y ago
[deleted]
fatherzine 3y ago
prices, of all goods, inflate exponentially the relative value of specific goods fluctuates within a small constant in the long run, the exponential dominates the linear ---- thus the price of gold is a yardstick of the exponential inflation of prices, irrespective of the relative fluctuations of gold vs food vs energy
- AnimalMuppet 3y ago
  In an economy, gold is just one more good. Sure, we could use it as an inflation index. Or we could use gasoline, or new cars, or eggs, or any of a million other things. Why should we use gold as opposed to all those other things? Or, here's an idea, maybe we should use a weighted index of several of those things as a measure, in order to prevent misleading data from the fluctuations in the price of any one item?
  - vel0city 3y ago
    Hey, that idea sounds really great. We could create some normalized basket of goods consumers normally buy. Then we could chart that basket as some kind of index of consumer prices. Nah. Who would do that. We can just look at the price of gold, that's all that really matters.
    - nine_k 3y ago
      Peruse Purchasing Power Parity stats for that.
  - fatherzine 3y ago
    Exactly. Use gasoline instead. See e.g https://www.macrotrends.net/1380/gold-to-oil-ratio-historical-chart https://www.macrotrends.net/1380/gold-to-oil-ratio-historica.... Over 80 years (since 1946), the ratio held stable within 10-40 range, with a few brief spikes. The variance from the average held in a band [-2x, 2x], with a few brief spikes of ~ +-4x. See also e.g. https://www.creditdonkey.com/gas-price-history.html https://www.creditdonkey.com/gas-price-history.html for the raw price of gasoline, exponentially shaped. The increase over 80 years (since 1946, to match the ratio dataset) is 15x. Extra wrinkle. The exponent of the exponential is not quite constant over time, currency can debase much faster than one would naively expect by extrapolating historical trends. Edit. For completness, the BLS inflation index tracks a price inflation from 1946 to 2023 of, guess what, 15x. https://www.in2013dollars.com/us/inflation/1946 https://www.in2013dollars.com/us/inflation/1946
  - RetroTechie 3y ago
    > Or, here's an idea, maybe we should use a weighted index of several of those things as a measure That's done already. More useful: such index as a ratio of wages. Say, [price of standardized basket of commodities] / minimum wage. That would tell you how many # of paid work needed to (for example) fill a shopping cart with a week's worth of food + heating / powering one's home over that time. ("minimum wage" = applies to folks scraping by in low-paid jobs. Higher earners are living the good life anyway, imho).
    - 3y ago
- mberning 3y ago
  That is just not true. Inflation is not an immutable law of nature. In fact, we should expect to see the prices of certain commodities go down as technological advances drive efficiency and productivity. And in fact many times in the past we have seen the price of food, for example, go down relative to other expenditures.
  - fatherzine 3y ago
    inflation is emergent of interest. interest is multiplicative, which compounds into an exponential. sadly i am no boltzmann, so i can't provide a formal derivation -- challenge for the mathematically gifted amongst us.
- vel0city 3y ago
  The three lines above the last don't do anything to say why you'd want to use the price of gold for that yardstick. And once again with it being so detached from the actual reality of most consumers it seems to be a pretty poor one. In fact, the ending of "irrespective of the relative fluctuations of gold vs food vs energy" kind of alludes to its value being radically detached from things people actually care about. If the fluctuations of USD / Gold are so detached from things people actually care about, it seems like it is a worthless yardstick. And here's the real question. If the price of gas and the price of food stays the same but gold goes to $9,000/oz, did my life change? No, not really. If the other prices stay the same but gold goes to $20/oz, did my life change? No. If gas goes to $50/gal, did my life change? Radically. If (index of food) goes 10x higher, did my life change? Radically. Which is the "real" inflation again?

madsbuch 3y ago

I flatiron is a relative term. yes, if you define gold as the unit of value, then it can not inflate or deflate. normally, when we talk about inflation. real value is the yardstick. ie. something more akin to the big Mac index.

viknesh 3y ago

The reasoning is correct but the conclusion is backwards IMO. You should "adjust for inflation" (using other measures for inflation) to examine the current price of gold. If gold is still expensive, either the inflation adjustments are incorrect, gold is mispriced, or external force is driving demand for gold. Put another way, because gold is an "independent yardstick" for inflation, you have to "adjust for inflation" to draw any conclusions about the current price of gold.

grotorea 3y ago

Doesn't it make much more sense to use the prices for usable goods and services as the yardstick? Gold is supposed to not lose value to inflation but that's not a proven rule is it?