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Gold prices are hitting records

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Re: Gold prices are hitting records

#71

Post by ta_billlegrand »

ajross wrote: post #20
ortusdux wrote: post #16

Earlier quoted context omitted.

Gold is generally considered a hedge against inflation. https://www.forbes.com/advisor/investing/gold-inflation-hedg...

And by bidding it up at the end of a period of inflation, those trying to hedge burned themselves. Same thing is happening now: inflation is back down to baseline, but people think it's high because prices are higher than they were (brains have trouble with reasoning based on derivatives of functions). Basically gold is, as it always has been, a sucker's bet. All the people buying it now are probably going to lose mo…

Since Nixon ended the convertibility of the US dollar to gold (at $35/oz) in 1971, the price of gold in dollars has increased at about 8% a year. The S&P 500 over that time frame has returned a bit over 10% a year. If gold has been a sucker's bet, stocks have been barely less of one.

Of course, the correlation between gold prices and stock prices is quite low, so a blended portfolio (occasionally rebalanced) would have outperformed a 100% allocation to either with less volatility.

Re: Gold prices are hitting records

#72

Post by nradov »

ortusdux wrote: post #16
Dig1t wrote: post #3

Earlier quoted context omitted.

Looks like Great Depression, 1979/1980, and right after the Great Recession. What is the significance of 79/80?

Gold is generally considered a hedge against inflation. https://www.forbes.com/advisor/investing/gold-inflation-hedg...

That is more of a myth than a reality. If you chart gold investment returns along with consumer price inflation since 1971 (when the US fully left the gold standard) it turns out that gold isn't a great inflation hedge. Other asset classes are probably a better choice for most investors.

Re: Gold prices are hitting records

#73

Post by fatherzine »

AnimalMuppet wrote: post #63
fatherzine wrote: post #51

Earlier quoted context omitted.

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

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?

Exactly. Use gasoline instead.

See e.g 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 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

Re: Gold prices are hitting records

#74

Post by blacksqr »

randomdata wrote: post #67
Dig1t wrote: post #3

Earlier quoted context omitted.

Looks like Great Depression, 1979/1980, and right after the Great Recession. What is the significance of 79/80?

~1980, ~2010, and ~2020 are the three times it was higher, inflation adjusted. The Great Depression era doesn't come close (and is also well outside of the 50 year window given).

Trading in gold was banned in 1933 in the United States. The price was set by the government at $35/oz. The ban wasn't lifted until 1974, at which time the price skyrocketed.

Re: Gold prices are hitting records

#75

Post by strangesmells06 »

Buttons840 wrote: post #29
strangesmells06 wrote: post #6

Earlier quoted context omitted.

It was the most severe recession since the Great depression lol good times /s https://en.m.wikipedia.org/wiki/Early_1980s_recession Good time to buy defense contractor stock because one way to get out of serious depressions/recession is a war. And the presidential election is next year...

Those previous recessions were marked by high unemployment, right? But currently we have record low unemployment. Is the high unemployment on its way, or is this something new?

I guess it depends on how you define unemployment.

Over half of of employed people nowadays don't make enough to pay their fundamental bills and/or live paycheck to paycheck and have to take up huge debt to make it every month.

so while they technically have a "job"...is it really if it doesnt cover their bills?

classifying something as a job is extremely bullshitable.

Re: Gold prices are hitting records

#76

Post by fatherzine »

mberning wrote: post #66
fatherzine wrote: post #51

Earlier quoted context omitted.

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

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.

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.

Re: Gold prices are hitting records

#77

Post by nine_k »

vel0city wrote: post #70
AnimalMuppet wrote: post #63

Earlier quoted context omitted.

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?

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.

Peruse Purchasing Power Parity stats for that.

Re: Gold prices are hitting records

#78

Post by bryanlarsen »

nostromo wrote: post #8

The US real estate to gold ration has always facinated me: https://www.longtermtrends.net/real-estate-gold-ratio/ If you bought a house with gold in 1890 or 2023, the price would be... about the same.

The stat I find most fascinating is the price of a bushel (60 pounds) of wheat over the last 750 years. In 1260 the price of wheat was 6-8 British shillings, aka 0.3 - 0.4 British pounds, which back then was actually worth 0.3 - 0.4 pounds of silver.

The price then bounced around 1 pound per bushel for the next 650 years or so.

And then I make the arbitrary but defensible switch to US dollars. Back then a British pound was worth about $5, and the price of a bushel of wheat has bounced around the $5/bushel mark for the last 100 years.

Today, the price of wheat is $6.50/bushel.

In other words, the price of wheat has tripled in 750 years in dollar terms. Inflation has tripled in my lifetime, but the price of wheat took 750 years to triple.

Re: Gold prices are hitting records

#79

Post by [deleted] »

strangesmells06 wrote: post #75
Buttons840 wrote: post #29

Earlier quoted context omitted.

Those previous recessions were marked by high unemployment, right? But currently we have record low unemployment. Is the high unemployment on its way, or is this something new?

I guess it depends on how you define unemployment. Over half of of employed people nowadays don't make enough to pay their fundamental bills and/or live paycheck to paycheck and have to take up huge debt to make it every month. so while they technically have a "job"...is it really if it doesnt cover their bills? classifying something as a job is extremely bullshitable.

[deleted]

Re: Gold prices are hitting records

#80

Post by ajross »

ta_billlegrand wrote: post #71
ajross wrote: post #20

Earlier quoted context omitted.

And by bidding it up at the end of a period of inflation, those trying to hedge burned themselves. Same thing is happening now: inflation is back down to baseline, but people think it's high because prices are higher than they were (brains have trouble with reasoning based on derivatives of functions). Basically gold is, as it always has been, a sucker's bet. All the people buying it now are probably going to lose mo…

Since Nixon ended the convertibility of the US dollar to gold (at $35/oz) in 1971, the price of gold in dollars has increased at about 8% a year. The S&P 500 over that time frame has returned a bit over 10% a year. If gold has been a sucker's bet, stocks have been barely less of one. Of course, the correlation between gold prices and stock prices is quite low, so a blended portfolio (occasionally rebalanced) would ha…

You're probably being downvoted unfairly because of the reference to the fiat currency conspiracism. But to treat your actual point:

That's an extremely cherry-picked date. 1970 was the bottom a deep trough in gold prices. If you look just a few years in either direction, it was 50% higher. You would have had to aim your investment with shocking precision to even get close to stocks in terms of returns. If you look back to 1940, you'll see that gold has returned about 1.2% in real value, which is significantly less than bank interest. Gold has been losing money, on balance, in the power-war world.

See: https://www.macrotrends.net/1333/historical-gold-prices-100-...

It's a volatile asset, so you can always play games with dates to make it look like a good thing. But it's not. It's a sucker's bet, and I stand by that. Buy a mutual fund.

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