In January of 1980, gold hit a peak of $830/oz and as of August 2023, the last price of gold was listed at $1915/oz so is that a good return?
Using the inflation widget from bls.gov we put in $830/oz and calculated what gold should be based on the inflation adjustment and that number came out to be $3261/oz.
So where did gold go wrong? According to the inflation calculator, gold is 41% below the anticipated inflation adjusted value. Worse yet, the global population in the world went from 4.3 billion in 1980 to nearly 8 billion in 2023. A doubling of the human population didn’t seem to impact the price of gold as one might expect. Perhaps the supply of gold has grown exponentially thus lowering the price of gold?
The World Gold Council has a chart of gold supply over the years and we don’t see any huge supply production.
What about conspiracy theories? Well the grand conspiracy theory about gold is that the price is being suppressed by central banks or other shadowy characters for some unknown reason. The truth seems more along the lines that gold just doesn’t have the demand it had in the past.
There are other things that might be “suppressing” the price of gold that have nothing to do with conspiracy theory. Gold doesn’t pay interest and right now T-bills and other government bonds are paying very good interest on money from over 5% for short term or over 4% for 30 year bonds.
Gold also has competition from other things such as digital currencies, NFTs, high yield bank CDs, and stocks that have shown amazing resiliency during a period of central bank rate hikes.
Does this mean that it’s time to dump your gold? We own some gold and we won’t be dumping anytime soon but we also won’t be buying any more. We’ve been earning great returns in oil & gas stocks like Devon and our portfolio is top heavy those 5% T-bills which will generate more cash to create even more cash and gold simply doesn’t have that cash generating ability from what we’ve seen these past 30 years.
We’ll keep an eye on gold to see if anything exciting happens but if the past is any indication, it’ll just sit there looking pretty but to find out stay tuned, stay profitable and stay solvent…