Gold as an investment

By Philip Brewer on 30 August 2007 comments

There are those who point to the 1980 peak gold price of $850/oz and observe that the price would have to go up to $2149/oz just to get back to that point (after inflation). I say, take a second look at the data.

The graph above shows the inflation-adjusted price of gold in dollars per ounce from 1913 to 2006 (adjusted to 1983 dollars). I don't think any sane reading of the data supports the 1980 peak as the "normal" price to which gold will inevitably return. The long term average price of $209/oz (again, 1983 dollars) looks like a rather more reasonable "normal" price to me. In today's dollars that would be $436/oz.

This makes sense, given the nature of gold as a store of value.

I think there's a good case to be made for holding gold as a hedge against both inflation and catastrophe. But I think any purchase of gold should be made with the expectation that prices will tend toward the historic average price. Since gold is trading well above that price now ($664.75 at yesterday's London fix), buying gold today only makes sense if you expect your next-best investment option to lose more than a third of its value.

Gold price data from

Inflation data from the Bureau of Labor Statistics

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Guest's picture

Gold is more liquid today than the paper market. Though its price keeps fluctuating, investors know that in the long run, they will reap the benefits of investing in such a prime commodity.

Guest's picture

I see gold as a wealth insurance. With a swoosh of an economic catastrophe, everything in your portfolio – stocks and bonds – will take a nose-dive, but gold appreciates in value during such times. This is why I rolled over my 401K to gold-backed IRA. It reduces the vulnerability of your portfolio against stock market crash and plummeting purchasing power of dollar. This infographic explains it really well