The purchasing power of gold vs. inflation

I want to ask our members here, and specifically these older ones, who might know more about the purchasing power of gold.

Here we have a graph showing the price of 1 OZ gold between the period 1973-2020:



Between 1980-2006 1 OZ gold had the value of 300-400 dollars. Later between 2013-2018 the price for one OZ gold was 1200-1300 dollars.

That means the price of gold has gone up about 3 or 4 times or so.

But that doesn’t mean necessarily that you are 3 or 4 times richer now: Because there is inflation and maybe the price of milk, bread or real estate have also gone up 3 or 4 times.

Do you get my point here?

Now I want to ask you – particularly the older members – about this:

Has the price of milk, bread and real estate (or other relevant assets) also gone up 3-4 times just as gold?

I hope we can have a debate here.

 

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Hhhmmmm.... Memory isn't what it used to be..... I joined the Army in 1977 and had a one year old daughter so I had been out on my own and paying attention to that sort of thing for better than a year. We were poor but I do remember we budgeted forty bucks a week for groceries, eighty bucks a month for rent and twenty bucks a month for auto liability insurance. I held two jobs to make ends meet and my second job was part time pumping gas and I remember pumping thirty cent a gallon gas. Seems when I left the Army in 1984, gas was around eighty cents a gallon. The whole gas shortage/OPEC thing took place and gas prices rose rapidly. I was single when I left the Army and the only cost I was concerned with was Jack Daniels.... Today, my wife budgets $350.00 a week for groceries, mortgage is about $2000.00 a month, auto insurance is $150.00 a month..... Absolutely the cost of living has easily quadrupled. Other thing to take into account is that we didn't have such things as cable TV bills, cell phone bills or internet connection fees that we consider to be necessities these days.

 

Amazing sir.

If you don't mind I would like to ask you how about the house and car?

If you were going to buy a similiar house and a new car, have the prices quadrupled? How much has a house and a new car rose in price?

 

Oh dear heavens yes. The first house I bought was in the late 1980’s. It was 1100 square feet and I paid 39k for it. Funny that I saw that home on the market not long ago at 120k. I couldn’t speak to a new car. Just wasn’t something I considered until not too many years ago. All my cars were used….. Only six years ago I purchased my first “new” vehicle. A Ford 150 pickup that I paid 36k for. I have very recently been considering trading in for a new model….. Current cost is 52k for the same truck I spent 36k for only six years ago….. If I remember correctly, gold was spiking about that time as well.

 

I think that in order to figure out when gold was strong we need to see a graph of inflation in the same time period.

 

I bet it's a much nicer truck to be fair though

 

Well, certainly it does have more standard features but with the same accessory package/drive train. Since it has gone up so much, I am just going to wait for the electric versions to hit the dealers lot.

 

Forget ANY and all historical charts involving gold. They are massively distorted if you go back decades because gold was fixed until 1971 and had a 20-fold run-up in the 1970's.

Gold is a speculative investment. It reacts to multiple factors including inflation, commodity prices, Central Bank selling, jewelry demand, real interest rates, etc.

Gold usually lags inflation and price increases over time, but can overshoot over shorter time periods. In other words, it's a meaningless relationship.

Buy gold if you like collecting bullion or gold coins. If gold goes to $3,000 an ounce or even $5,000 it will likely happen over a few months in a parabolic move. It won't be a nice, slow, gradual move.

 

Just hope it goes up....LOL

 

Gold can't get out of it's own way....it doesn't go up when there's deflation or now inflation....BitCoin sucks $$$ from gold, now BitCoin collapses and gold still sucks....rates are being increased which is negative but when rates were being cut and negative, gold did nothing...Central Banks buy gold and it does nothing, now they are net sellers. Ditto SWFs, China, and India relative to past buying norms.

Me personally ? I think we will see all of that as just wearing out the last of the bulls. This is how a bear market bottom is made. Not with a collapse in gold prices, but just a grind-it-out, Chinese Water Torture type of scraping the bottom in the $1,500 - $2,000 range.

I still feel gold can make a move to $3,000 by 2024 or so.

 

When the price of Gold went through the $2000 ceiling, my very fair large Gold/Silver coin offerings on eBid all were sold within 24 hours. They had been there for months, and the best have been replaced without interest for months.

I believe coin offering prices have been increased, while quality of listings, and dealer buy prices reduced.

JMHO

 

I believe coin offering prices have been increased, while quality of listings, and dealer buy prices reduced.

I thought that was a given most of the time.

 

Actually, we should hope the price of gold goes down. That would happen when governments balance their budgets and there is peace in the world. Gold goes up anticipating inflation and when there is chaos in the world, down with harmony.

 

Gold IMO is not a speculative investment. To my way of thinking it is the ultimate hedge against the unexpected. I first purchased gold in the 1970s and it’s value as far as what can be purchased has remained fairly constant. Of course having central and investment banks manipulating markets makes valuing anything difficult. Think history: gold has always been desired and to think that won’t continue is a fool’s errand.

 

There's a lot to consider when comparing prices of houses, cars, etc. First of all, houses in 2022 are not like the houses in 1980. They have better insulation, more "smart" appliances, etc. A modern car is more like a computer than it is like a car from the '80s. Many of them don't use gasoline at all. Have you ever tried to change spark plugs or some other formerly simple job on a newer car?

Gold, silver and other metals are nothing more than commodities today. They are not money, and they haven't been money in this country in the lifetimes of nearly everyone on this site. Gold is pretty, heavy, and it makes many of us happy to have some, but you can't spend it. If the whole world goes to hell, as it might, gold will still be a luxury that won't be valued nearly as much as shelter and food.

So, comparing the price of gold today, or any time after it was demonetized, with what it was worth when it had a fixed exchange rate is really quite meaningless.

Finally, is the graph posted by the OP in constant dollars? If not, it shows that gold is worth less than it was a decade ago.

 

HERE IS A SIMPLE THING I TELL MY YOUGER FRIENDS:

BACK IN 1982 PACK OF CIGS WAS 90 CENTS, A GAL OF GAS WAS UNDER A DOLLAR, WE MADE 4.15 PER HOUR MIN WAGE, COULD BUY ROUGHLY 4 PACKS OF CIGS, OR 4 GALS GAS, NOW MIN WAGE IS 10.15 (IN CT) A GAL OF GAS IS 3.59 A PACK OF SMOKES IS 11.15, SEE THE COMPARISON???? INFLATION TOOK A BIGGER ADVANCE THAN OUR PAY
SIMILARLY, A HOUSE I BOUGHT FOR 59K BACK THEN IS NOW WORTH 200K NOW

 

Inflation is more like 10-15 times in that time frame, and no, gold has not gone up that much as to match inflation. I think PMs will do a run-up in the near future to balance the scale, and home values will adjust back down to realistic levels, and wages will always be lower than you would like.

 

I think a lot of it depends where you live too. I bought my house in 97 for $110,000. A house on the same block 3 doors down just sold for $950,000. Prices on everything are all over the board.

 

The minimum wage in 1982 was $3.35/hr.

 

And gasoline went over $1/gal in '79