Parsing Two Centuries of Gold Trades

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Peter Brimelow

March 1, 2010, 2:08 a.m. EST · Recommend (1) · Post:

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By Peter Brimelow & Edwin S. Rubenstein

NEW YORK (MarketWatch) -- Didn't someone say "we report, you decide"? Well, that's what we're doing with the 200-year gold chart.

It's a doozy.

We've been running 200-year looks at various investment vehicles for several years now. ( See April 14, 2003, column.)

They're all based on the historical data on total cumulative real returns developed by Prof. Jeremy Siegel of the University of Pennsylvania's Wharton School and used in his classic book "Stocks For The Long Run." (But our conclusions are our own.)

Siegel's data and much else are available on his Web site.

Most recently, we concluded that stocks were not particularly overvalued by historic standards. ( See Feb. 25 column.)

When we last looked at gold, we concluded it was probably undervalued, too. ( See Nov. 18, 2004, column. Note that this column contains both the 200-year gold chart, which we do not reproduce here, and a chart focusing on the more recent past).

Gold was then at $485.85 per ounce. On Friday night, it closed at $1,118.30. Ha!

In terms of 1801 purchasing power -- i.e., adjusted for inflation -- $1.00 worth of 1801 gold was then at $1.45. That was still far below gold's 1980 nominal peak, when it reached $4.26 adjusted for inflation.

But now gold has spiked again. At its Friday close of $1,118.30, an 1801 $1.00 worth of gold would be worth $3.26 in 1801 dollars. Gold is supposed to be a store of value. And in fact throughout the 19th century, its purchasing power did fluctuate in a fairly narrow range.

But the 20th century has been wild.

So is gold's second, current spike sustainable?

It may not look like it. Arguably, gold was artificially suppressed by New Deal Era price controls, reaching a low of $0.58 in 1969, and the 1980 spike was a rebound.

But what explains the post-2000 spike?

Of course, the radical gold bugs grouped around the Le Metropole Café site have argued for nearly 20 years that the gold price was being suppressed again -- by an informal alliance of public- and private-sector actors, trying to sustain a financial bubble. ( See Sept 22, 2008, column.)

The first and only thing that this gold chart is saying is that it is garbage: "garbage in: garbage out." To anyone who has been around for the last fifty years or more, it is plainly evident that any historical price movement attached to any product is meaningless if based in any way in relationship to the US Government statistics on inflation. The same conclusion can be arrived at..."

- gleongelpi | 3:34 a.m. Today3:34 a.m. March 1, 2010

Lionsgate, over the past decade, has proven to be the rarest commodity in Hollywood: a well run, cost-conscious movie studio that actually spends every penny wisely. Carl Icahn noticed.

11:16 a.m. Today11:16 a.m. March 1, 2010 | Comments: 1

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