Gold Not Really at ‘Record High’

David Leonhardt seeks to explode “The Myth of Record-High Gold.”

“Gold sets record high amid economic fears,” The Associated Press recently wrote. “Gold surges to record high,” CNN said. Gold closed Monday “at a record $1,402.80 per troy ounce,” the front page of The Wall Street Journal reported Tuesday.

It’s a good story. Unfortunately, it’s not true, at least not in any meaningful sense.

Gold is at a record only if you fail to adjust for inflation. And you should almost always adjust for inflation. Otherwise, you end up with a series of meaningless records — Gold reaches record high! Oil reaches record high! Lettuce reaches record high! — that depend on the fact that a dollar in 2010 does not have the same value as a dollar did in, say, 1980.

More than a month ago, Ryan Chittum of The Columbia Journalism Review noticed the epidemic of supposed gold records and urged those of us in the media to stop. As he explained, the actual record was set 30 years ago, when the price of gold, in today’s dollars, hit $2,318 — or 65 percent higher than it closed on Monday.

The myth is also lining the pockets of a goodly number of conservative talk show hosts, who all seem to be promoting a panicked move to invest in the precious metal.

As Warren Buffett has famously said, “Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.” More recently, he told Ben Stein, “You could take all the gold that’s ever been mined, and it would fill a cube 67 feet in each direction. For what that’s worth at current gold prices, you could buy all — not some — all of the farmland in the United States. Plus, you could buy 10 Exxon Mobils, plus have $1 trillion of walking-around money. Or you could have a big cube of metal. Which would you take? Which is going to produce more value?”

Quite.

FILED UNDER: Economics and Business, Quick Takes
James Joyner
About James Joyner
James Joyner is Professor and Department Head of Security Studies at Marine Corps University's Command and Staff College and a nonresident senior fellow at the Scowcroft Center for Strategy and Security at the Atlantic Council. He's a former Army officer and Desert Storm vet. Views expressed here are his own. Follow James on Twitter @DrJJoyner.

Comments

  1. john personna says:

    I think I’d rather see gold prices in median hours worked, to see how dear it has become to the purchaser.

    Inflation numbers, esp. consumer inflation numbers, tell you the opposite – what you can buy as you sell it.

  2. john personna says:

    This page has both CPI and wage based charts:

    http://www.financialsensearchive.com/Market/pretti/2010/0604.html

    It says we’d need $1900/oz to match the 1980 spike, using a wage-based metric.