Gold Is Cheaper Now Than In 1980

GOLD IS CHEAPER NOW 

Most investors and others who follow the gold market are aware that gold peaked in January 1980 at $850 oz.

Gold is currently priced at $1772 oz., somewhat lower than its peak in August 2020 at $2060 oz.  In either case, the gold price has increased considerably since 1980.

After forty years, though, one might be inclined to ask in all sincerity “Is that all there is?”

The question has merit. In inflation-adjusted terms, gold is actually cheaper today at $1772 oz. by twenty-three percent compared to it’s high in January 1980 at $850 oz. 

50 YEARS OF HIGHER GOLD PRICES 

Below is a chart (source) of gold prices over the past century. The prices are monthly average closing prices…

                                               Gold Prices – 100 Year Historical Chart

40 YEARS OF LOWER GOLD PRICES 

Below is the same chart except that the prices are adjusted for the effects of inflation…

                                 Gold Prices – 100 Year Historical Chart (inflation-adjusted)

The chart shows real (inflation-adjusted) gold prices per ounce back to 1915. As in the previous chart, the prices are monthly average closing prices.

Here is a table that contains the specific information related to the three peak price points on the chart immediately above…

FEBRUARY 1980     $  664 oz.               $2309 oz.

AUGUST 2011          $1825 oz.              $2210 oz.

AUGUST 2020.         $1970 oz.              $2078 oz.

The column on the left lists the prices in effect on the date indicated. In other. words, the average monthly closing price for gold in February 1980 was $664 oz.; in August 2011 it was $1825 oz., etc.

The column on the right lists the inflation-adjusted prices which correspond to the respective price peaks. For example, after adjusting for the effects of inflation, $664 oz. in 1980 is the equivalent of $2309 oz. in today’s much weaker dollar.

The numbers in the table confirm what we saw in the first chart; that the nominal price of gold continues to increase reflecting the deterioration and loss of purchasing power in the US dollar.

In inflation-adjusted terms, however, the price of gold has not exceeded its 1980 peak and has actually failed to even match it, both in 2011 and 2020.

WHY IS GOLD DECLINING IN REAL TERMS?

Since gold’s higher price over time is a reflection of the ongoing loss in purchasing power of the US dollar, it cannot be expected to exceed previous price peaks on an inflation-adjusted basis.  (see The Meaning Behind Gold’s Triple Top)

By the same token, it is not unreasonable to expect it to match the peaks. The one factor which is likely limiting gold’s price from matching previous price peaks is that the overall effects of Federal Reserve inflation are continuing to have less and less impact.  (see Everything Peaked in 1980 – The Waning Effects Of Inflation)

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