Gold, Inflation, All-Time Highs–Good to Know Where the Real Top Was

Gold Bars (Bullion). Inflation-proof?
  • Gold, inflation are closely related, as people buy gold to protect their wealth from depreciation.
  •  Also, by low inflation, gold reached a new all-time high this August.
  •  But this is only a nominal top, nothing special in real terms.
  •  New highs to expect if inflation increases.

Buffalo gold coin


Gold Price is High, Inflation Low–How Can That Happen?

The gold price reached all-time highs in August, by 2,089.2 USD (futures price). It entered a correction later, but it is still one of the best investments in the last couple of years. At $1862 at the time of writing, that is 20 percent higher year-to-day, 35 percent up in 3 years.

Gold pretends to go higher with inflation. At least, that is a common belief. But it depends also on the interest rates and bond yields, and if those are higher than the inflation. If the real interest rate is decent, people may seek shelter in bonds or bank deposits. (The real interest rate is the interest rate over the inflation.) But if the real interest rate is negative, most of them may buy alternative investments, real-assets as inflation protection. Like gold, stocks, real estate, or sometimes, other commodities.

Today, interest rates are at historic lows, but inflation is also moderate in developed countries. But the real interest rates are negative in most states and may stay there for years. Central banks declared they want to make “whatever it takes” to prevent deflation, keeping interests low. That benefits precious metals and other real assets.

What Is Gold’s Friend, the Inflation Telling Us?

Is gold overpriced now? Is it too expensive today, or was it near the all-time high? Is the inflation, gold’s friend telling us something? We draw a chart about the gold price, and its inflation-adjusted price, on the August 2020 price level. (We corrected the gold price with the US consumer price index of US Inflation Calculator.) We can see how gold performed historically, on today’s price level.

Chart: Gold Futures Price and Gold’s Inflation-Adjusted Price, June 1969–August 2020. (Monthly Highs.)
Chart: Gold Futures Price and Gold’s Inflation-Adjusted Price, June 1969–August 2020. (Monthly Highs.)

At the actual consumer levels, the September 2011 record high of $1,911.60 would be $2,189.88 worth. Considering this, the new all-time high in August was not a real-term top in the gold price.

When the Gold Price Begins with “3”

With the same method, gold price reached $909.9 in January 1980–but this was much-much more, $3,040 on the 2020 price levels. Some months ago, before the new peaks over $2,000, I collected gold price forecasts, and some of them were quite interesting, between $3,000-5,000. Considering that gold already reached 3,000 in 1980, I don’t feel those predictions irrational or gold overpriced anymore.

Alternative Inflation Data and Gold?

But many investors question whether inflation is only as high as the authorities calculate it. They have several arguments for this, such as the fact that the method of calculating inflation has changed various times. The result, inflation was lower after every modification. Others mention the fact that the weight of products and services in the inflation basket is unrealistic for many people. (The average consumer, “John Doe” doesn’t exist in reality.)

In the last years, official statistics showed approximately 1-3 percent of US inflation. But the alternative “shadow inflation statistics” 4-7 percent. Let’s suppose skeptics are right, and inflation is, in fact, much higher than the official figures. That means that the $909.9 for an ounce of gold in 1980 can be, I guess, somewhere between 5,000 and 10,000 USD. But to determine it, it requires another calculation.


Conclusion–Prepare for Surprises

Also, by low inflation, gold reached a new all-time high this August, but that is only a nominal value. The $909.9 price from 1980 is at least $3,000 worth today–or more by alternative inflation calculations. So, the gold price predictions between 3,000 and 5,000 are not so fantastic anymore.

That doesn’t mean necessarily gold must or will reach those levels. But, especially if inflation soars in the next years, much higher highs are imaginable.



I’m not a certified financial advisor nor a certified financial analyst, accountant nor lawyer. The contents on my site and in my posts are for informational and entertainment purposes and reflecting my collection of data, ideas, opinions. Please, make your proper research or consult your advisors before making any investment or financial or legal decisions.

I have open positions in silver (long), platinum (long), junior gold miners (long), crude oil (short), German stocks (short), uranium miners (long), S&P 500 (short) and cryptocurrencies (long) at the time of writing.


Leave a Reply