gold price

Descending Price Peaks In Latest Gold Charts

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The latest gold charts are pictured below and show a series of descending price peaks dating back to 1980. There are four charts. The first two charts are for the period following the August 2011 peak. The third and fourth charts are for the period after the gold price peaked in 1980. Prices on all charts are monthly average closing prices.

For example, the average closing price for gold in the month of January 1980 was $677 oz. This price ($677) is shown on Chart #3 below. During that same month, the intraday high for gold was $843 oz. The spike in price above $800 was very short-lived and not a reliable indicator of where gold traded during the month of January 1980. Average closing prices are more representative and more realistic for comparative purposes and analyses.

There are two charts for each time period. The first chart plots nominal prices; the second chart shows inflation-adjusted prices. Here is the first chart…

#1 Gold Prices August 2011-June 2024

The average closing price for gold in August 2011 was $1825 oz. After declining for more than four years, the gold price bottomed at $1060 oz. and began rising. The 2011 high was eclipsed and a new high price for gold was set at $1971 oz. in July 2020. After a sharp decline in 2022, the price of gold rose to another new high of $2327 oz., which is also the current closing price on June 28, 2024. The gold price has more than doubled (119%) since its December 2015 low.  That is quite impressive, but, there are some caveats.

Gold’s recent price performance, in total, looks very good if you are short-term oriented. The shouts of joy might be a bit overdone, though, if you have been holding gold since its peak in 2011. In that case, the total price increase for the entire thirteen-year period is only 27%. That is an annualized gain of 1.86%, which is more indicative of a slow-moving wagon, rather than a rocket ship in blastoff mode.

The numbers in both cases are made worse when the effects of inflation are factored in…

#2 Gold Prices (inflation-adjusted) August 2011-June 2024

In Chart #2, the effects of inflation have turned the 2011 high and subsequent new highs in 2020 and 2024 into a series of descending peaks. Each successive peak almost matches, but doesn’t quite reach the previous high point. The total gain of 119% referenced in Chart #1 is almost halved, down to 66%. The meager nominal price increase of 27% is now a net loss (-8%). The $1825 oz. nominal price peak in 2011 correlates to a real (inflation-adjusted) price of $2529 oz. in today’s cheaper dollar(s),

Now, let’s look at gold’s price performance over a longer time period. Here is Chart #3…

#3 Gold Prices January 1980-June 2024

When the gold price peaked in January 1980, it correlated to the effects of inflation that had depleted U.S. dollar purchasing power by 97% over the previous half-century. At $677 oz., the gold price was thirty-three times higher than it was when gold and the dollar were interchangeable, i.e., convertible, at a fixed ratio of $20.67 per ounce. The next major peak for the gold price was in 2011 at $1825 oz., followed by 2020 and 2024. Now, lets look at inflation-adjusted prices dating back to 1980…

#4 Gold Prices (inflation-adjusted) January 1980-June 2024 

In Chart #4, the ever-ascending nominal price increases shown previously in Chart #3 are more severely subdued when the effects of inflation are factored in. In addition, both volatility and time become more apparent.  While the nominal price of gold continues to rise reflecting actual loss of purchasing power in the U.S. dollar, the gold price in real (inflation-adjusted) terms has yet to exceed any of its previous price peaks; and likely never will. That is because gold’s value is in its use as money and is basically constant.

Each price peak in gold beginning in 1980 and including the peaks in 2011, 2020, and 2024 is a reflection of the intervening loss of purchasing power in the U.S. dollar since the previous peak.

CONCLUSION 

After allowing for the effects of inflation, an ounce of gold at $2400 today is no more valuable than it was at $2000 in 2020, or $1825 in 2011, or $677 in 1980. For that matter, the purchasing power of one ounce of gold is the about the same today as it was a century ago when it was priced at $20.67. In other words, if you bought gold at any of those prices and held it until now, you do not have real profits. The higher gold price is not a profit. It represents the dollar’s loss of purchasing power. (There are possible short-term trading opportunities for traders. See Understanding Profit Potential In Gold)

Gold is real money and a long-term store of value. Holding gold provides a measure of protection against depreciating currencies. Over time, the increasing price of gold matches the loss of purchasing power in the U.S. dollar that has already occurred. (also see Gold Has Done It’s Job – Isn’t That Enough?)

Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED

What Happens To Gold Price If The Fed Doesn’t Cut Rates?

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GOLD PRICE IF THE FED DOESN’T CUT

With the increasing gold price of late comes the assumption that the expected cut in interest rates will open a torrent of cheap money that will bring the U.S. dollar down with a thud.  But, what would happen to the gold price if the Fed doesn’t cut interest rates?

What seemed like a universally expected event may not be as likely as some have assumed. In fact, the Fed has a history that includes examples of pivots and re-pivots; or, ignoring the presumed pivot and staying the course.
You can read more about the possibility that the Fed might not cut interest rates in my article Investors Are Too Anxious For Rate Cuts.

In this article we will address the implications for gold if the Fed doesn’t cut interest rates. It matters not what the reasoning is behind such a possibility. What matters is that much of what has happened to prices for gold, stocks, bonds, etc., is based on the presumption that several interest rate cuts are forthcoming, possibly before the end of the year. Hence, there is a potential shock for investors who have relied on that presumption, as well as the particular logic mentioned in our opening paragraph above, should the Fed not follow through.

IMPLICATIONS AND POSSIBILITIES

Ignoring for now the finer (and more critical) point of inflation-adjusted returns, both gold and stocks are at all-time highs. What might happen to gold if a “potential shock” becomes a reality? It depends.

To the extent that a more significant portion of money used to fund the purchase of gold recently was done so based on the presumed cuts in interest rates and a clear change in direction, then we could see a significant decline in the gold price; at least temporarily. This might also happen if interest rate cuts are delayed. Market participants in both stocks and gold would likely see any inaction or hesitancy by the Fed regarding interest rate cuts as negative for their investment outcomes and expectations.

Another possibility is that any effects on the gold price could be muted. That has more to do with other factors, not interest rates. For example, if the prevailing thoughts dominant in the minds of those placing a larger portion of the money flowing into gold is not based on concern about interest rates, rather on anything else, then it is entirely possible that the gold price might show little reaction to non-cuts in interest rates.

OTHER FACTORS, SUMMARY

Some buyers in the gold market are not thinking so much about interest rates. Their concerns have more to do with the continual loss of purchasing power in the U.S. dollar. The erosion of U.S. dollar purchasing power is the result of ongoing inflation, which is the intentional debasement of money by governments and central banks. The continuous expansion of the supply of money and credit for more than a century has resulted in a dollar which has lost ninety-nine percent of its purchasing power.

Over time the gold price is historically correlated to that decline in the purchasing power of the dollar. Gold is real money and a long-term store of value.

Whether buyers of gold are individuals (retail investors), speculators, hedge funds, governments, or central banks; and whatever the reasoning behind their purchases, which reasoning is quite often temporary; in the end, it is still all about the U.S. dollar. (also see U.S. Dollar Best Of The Worst; Gold Best Of The Best)

Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED!

Gold Is LITERALLY Priceless

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GOLD IS PRICELESS

Over 5000 years of recorded history, gold has proven itself to be real money. Gold’s value is in its use as money. That value is unquestioned.

Whatever arguments are put forth against gold’s use as money are attempts by government to free itself from the restrictions that gold imposes. Gold, when used properly,  limits the ability of government to inflate and debase its money.

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What’s Next For Gold Is Always About The US Dollar

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Since the origin of the Federal Reserve in 1913 the US dollar has lost ninety-nine percent of its purchasing power.

Not coincidentally, but in direct reflection of the dollar’s loss in purchasing power, the price of gold has multiplied one hundred fold from $20.67 oz to $2060 oz as of August 2020.

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Gold Price During Hyperinflation

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Let’s start by defining hyperinflation… 

“Hyperinflation is a term to describe rapid, excessive, and out-of-control general price increases in an economy. While inflation is a measure of the pace of rising prices for goods and services, hyperinflation is rapidly rising inflation, typically measuring more than 50% per month.”  (source)

In addition, hyperinflation is described as “an extreme case of monetary devaluation that is so rapid and out of control that the normal concepts of value and prices are meaningless.”

The latter description is much more characteristic of the potential threat that most people envision when they invoke the term hyperinflation.

Under the conditions characterized by price increases “so rapid and out of control that the normal concepts of value and prices are meaningless”, what would happen to the price of gold?

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Gold And US Treasuries – Punctures In The Everything-Bubble

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GOLD AND US TREASURIES 

The price of gold early Friday morning this past week touched $1720. At that level it was down $350 per ounce from its high point of $2070 last August.

The size of the decline is not unusual at face value. But, in light of the expectations for hugely higher inflation rates and much higher gold prices that have dominated the headlines over the past year, the drop might signal a cause for concern among gold bulls.

Meanwhile, eyes are fixed on interest rates for US Treasury bonds. During the same six-month period (August 2020 – February 2021) during which the price of gold fell by seventeen percent, the price of the 20-year US Treasury bond fell by twenty percent. That IS a huge deal, as it corresponds to sharply higher interest rates from less than 1% last August to as high as 2.26% just the other day.

The rush to proclaim correlation between interest rates and gold has resumed. Also, warnings and predictions of much higher inflation from around the globe are increasing.

As we have said on several occasions, there is no correlation between gold and interest rates (see Gold And Interest Rates – There Is No Correlation).

This can be seen on the charts below. The first chart (source) is a history of gold prices over the past fifty-six years and the second chart (source) is a history of interest rates over the same time period…

GOLD PRICES 1965-2021

 

10 YEAR US TREASURY RATE 1965-2021

During the 1970s, the price of gold rose from $40 per ounce to an intraday peak of $850. All throughout that time, the interest rate on the 10-year US Treasury bond rose higher and higher; from approximately 4% to 12.5%.

However, during the years 2000-2011, while the price of gold rose from $250 to $1900, interest rates on the 10-year US Treasury bond dropped from 6% to 2%.

The two decade-long periods provide contradictory results for the argument that lower interest rates are correlated to higher gold prices.

And for those who argue that the higher rates we are currently seeing are an indication of significantly higher inflation, then why is the gold price declining?

The higher interest rates are possibly a market reaction to the brutal effects of infinite credit creation and interest rate manipulation by the Federal Reserve.

The entire world economy is funded with cheap credit and most economic activity is dependent on it.  The prices for all financial assets misrepresent and grossly exaggerate any underlying fundamental value.

Higher rates might trigger a credit collapse so severe that any asset could decline in price by fifty percent or more.

As for gold, it would also decline – to a level commensurate with whatever strength the US dollar attains.

Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT  and  ALL HAIL THE FED!

Gold Market Manipulation And The Federal Reserve

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GOLD MARKET MANIPULATION 

Some gold bulls have bought in heavily to the argument that gold price suppression has been an ongoing activity for years, even decades. Supposedly, trading in the gold market is manipulated in ways that depress the market price for gold.

Assertions are made that the manipulation takes place in a shroud of secrecy; and the unexpected lower prices for gold, or prices that don’t meet wildly bullish expectations, are cited as evidence of conspiratorial activity.

The claim is made that the price of gold would be much higher if this manipulative trading activity were exposed, acknowledged, and prohibited. But…

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Gold – Bullish Or Bearish?

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GOLD – BULLISH OR BEARISH?

What does it mean to say that one is “bullish” on gold? Or “bearish”? Or, more simply, what is a bull or a bear?

“A bull is an investor who thinks the market, a specific security or an industry is poised to rise. Investors who adopt a bull approach purchase securities under the assumption that they can sell them later at a higher price. Bulls are optimistic investors who are attempting to profit from the upward movement of stocks, with certain strategies suited to that theory. …James Chen, Investopedia

According to the definition, then, being bullish on gold is an indication that an investor can optimistically purchase gold and expect to sell it later at a higher price for a profit. 

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Gold Price – US$700 Or US$7000?

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Does either of the above preclude the other?  In other words, if we expect gold to reach $7000.00 per ounce, and we are correct, does that mean that we can’t reasonably expect gold to go as low as $700.00 per ounce? Conversely, if we are predicting or expecting gold to decline from its current level and even breach $1000.00 per ounce on the downside, can $7000.00 per ounce, or anything even remotely close to that number, be a reasonable possibility? 

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