The price of gold in dollars has broken above the $2,100 mark and closed at its highest level ever this week (in nominal terms).
The price of gold is not near its all-time inflation-adjusted high, even using the government’s price inflation data. The price of gold briefly went above $800 in early 1980. Using the BLS CPI inflation calculator, you can plug in $800 in January 1980. 44 years later, that has the same buying power as $3,171.
This is probably understated, if anything, but it shows that gold could still surge a lot higher if we get into another gold-buying frenzy. And that is at today’s level. There is no telling how much the Fed will inflate in the future to service the massive debt and support the financial system.
This isn’t a prediction that gold is going to surge above $3,000 per ounce any time soon. It is just to show that it is possible.
Up until now, we haven’t been in any kind of a gold bubble, unlike most other asset classes. It is quite surprising that we haven’t seen the price of gold go up with worries about price inflation. Stocks have gone up a lot. Real estate went up a lot until the last year or so. Bitcoin is booming again.
Gold has risen, which is evident by it hitting an all-time high, but it has moved slowly. It tends to make a move, then maybe pull back a bit, and then trade in a somewhat narrow range for a while.
It wouldn’t be surprising for the same thing to happen here, but if I could say for sure, I would be extremely wealthy playing the futures market.
Gold has simply not been part of any speculative bubble. It has gotten little attention over the last many years. This is noticeable by watching CNBC during the day. You can see the three major indexes constantly updating. You can see the yields a little less frequently. You can see the price of Bitcoin frequently enough. The price of gold appears once in a while.
There seems to be something wrong in a world where the price of Bitcoin is popping up more than the price of gold on a television station that primarily follows the investment markets. I am not blaming CNBC. They are actually probably responding to consumer demand. There are more people interested in the day-to-day movements of Bitcoin as compared to gold.
Will Gold Stocks Finally Follow?
Gold stocks have done rather poorly over the last several years, even with the price of gold going higher. The costs of mining, just like the costs of most things, have gone higher. But the price of gold hasn’t exploded as might be expected in a relatively high price inflationary environment.
Couple this with a lack of enthusiasm in the gold market, and gold stocks have generally underperformed. This could all turn around quickly, but it would have to be with a sustained rise in the price of gold.
Buying gold stocks, gold mutual funds, and gold ETFs is a rather high-risk proposition, but it could come with high rewards when investors and speculators finally pile in.
Of course, investing in the broad stock market seems like a high-risk proposition these days too. But it doesn’t feel like it to most people because they are accustomed to stocks just going up in the last decade and a half. Every time there is a decent pullback, the bull market resumes.
The Fed has been in tightening mode for a couple of years now, and the yield curve has been inverted for well over a year. Yet, investors seem to have little fear of a recession or a major pullback in stocks.
If we do finally get a deep recession, we shouldn’t expect gold or gold stocks to do well in the short run. They may do well if the Fed starts creating massive amounts of new money out of thin air. The price of gold will probably hold up better than most stocks in general, but we may have to wait for more Fed funny money before we see a dramatic surge in gold and mining stocks.