Gold prices are hitting records | Hacker News Reader

Gold prices are hitting records

wsj.com

53 pointslxm82 comments

If you adjust for inflation, there have been 3 periods in the last 50 years with higher gold values.

https://www.macrotrends.net/1333/historical-gold-prices-100-...

Looks like Great Depression, 1979/1980, and right after the Great Recession.

What is the significance of 79/80?

It was the most severe recession since the Great depression lol good times /s https://en.m.wikipedia.org/wiki/Early_1980s_recession

Good time to buy defense contractor stock because one way to get out of serious depressions/recession is a war.

And the presidential election is next year...

Those previous recessions were marked by high unemployment, right? But currently we have record low unemployment. Is the high unemployment on its way, or is this something new?

I guess it depends on how you define unemployment.

Over half of of employed people nowadays don't make enough to pay their fundamental bills and/or live paycheck to paycheck and have to take up huge debt to make it every month.

so while they technically have a "job"...is it really if it doesnt cover their bills?

classifying something as a job is extremely bullshitable.

I wonder how the US army feels about a South American venture this time? Given the things happening in Guyana.

Given how small the Venezuelan military is, I’d wager the Americans would see it as too easy.

What Guyana needs is to invite the British and American military in for a joint “training” exercise. The uk has a nice new aircraft carrier that could do with a shake down.

There was an energy crisis related to unrest in Iran, the Iraqi invasion of Iran, and the oil output fluctuating as a result.

Interest rates spiked as the Fed tried to address inflation. Gold serves, in essence, as a short against paper currency. When inflation is running 14%, gold looks like a good alternative. So everyone was buying gold.

Gold is generally considered a hedge against inflation.

https://www.forbes.com/advisor/investing/gold-inflation-hedg...

And by bidding it up at the end of a period of inflation, those trying to hedge burned themselves. Same thing is happening now: inflation is back down to baseline, but people think it's high because prices are higher than they were (brains have trouble with reasoning based on derivatives of functions).

Basically gold is, as it always has been, a sucker's bet. All the people buying it now are probably going to lose money.

Yep. The key is to buy it 6 months ago, and then do everything you can to get others to continue buying in.

1979/80 wasn't the end of the inflation. Especially 1979.

But even later... there's a lag time in peoples' minds and, especially, emotions. When inflation has gone up to 10%, it's a huge surprise, but your mind is still back on 6% or 8%. When it comes back down to 10%, your mind is still on the 14% it was, not on the 6% or 8% it's (maybe) headed back to.

Since Nixon ended the convertibility of the US dollar to gold (at $35/oz) in 1971, the price of gold in dollars has increased at about 8% a year. The S&P 500 over that time frame has returned a bit over 10% a year. If gold has been a sucker's bet, stocks have been barely less of one.

Of course, the correlation between gold prices and stock prices is quite low, so a blended portfolio (occasionally rebalanced) would have outperformed a 100% allocation to either with less volatility.

You're probably being downvoted unfairly because of the reference to the fiat currency conspiracism. But to treat your actual point:

That's an extremely cherry-picked date. 1970 was the bottom a deep trough in gold prices. If you look just a few years in either direction, it was 50% higher. You would have had to aim your investment with shocking precision to even get close to stocks in terms of returns. If you look back to 1940, you'll see that gold has returned about 1.2% in real value, which is significantly less than bank interest. Gold has been losing money, on balance, in the power-war world.

See: https://www.macrotrends.net/1333/historical-gold-prices-100-...

It's a volatile asset, so you can always play games with dates to make it look like a good thing. But it's not. It's a sucker's bet, and I stand by that. Buy a mutual fund.

Yes, but that doesn't explain why didn't gold soar when inflation was far higher in the first half of 2022%

And it doesn't explain why gold is suddenly hitting all-time-highs right now, precisely when inflation is nearly back to pre-pandemic levels.

There are many hedges against inflation. Gold is more akin to a hedge against catastrophe. Unlike commodities or industrial shares, gold can be hidden and transported personally.

Is it these sort of buyers that have a major influence on the price though? (I don't know the answer.)

If you buy a large amount of gold on an exchange the physical gold often stays in the exact same vault, and someone just updates an ownership record.

Always buy and own gold (in decreasing priority):

(1) Physically in your custody in a secure place. Not always possible, e.g. digital nomad.

(2) Physical at a bullion dealer in a westernized country with a vaulting service that records your private ownership, so it is owned by you as property, in their custody, with a daily audit with your name on it, not as a financial liability of the vaulting company - i.e. outside the banking system, and not in a safe-deposit vault that restricts liability for precious metals.

(3) A financial instrument in a westernized country tied to audited physical holdings, e.g. Sprott Physical Gold, not GLD ETF, which is just manipulated paper fiction.

No other option - except perhaps some gold jewelry, which is not really secure, but can easily be worn when crossing borders (usually up to $10k without declaration, and above $10k is often easy, except at times of national panic/emergency/reset, whether real, imagined or fabricated to steal your gold).

Also be very careful about T&Cs for funding (2) & (3) through a joint account, even if your gold account is in your name only. If you get divorced, you may find that your ex owns half your gold, independent of any settlement, and ignoring any routing of the money from your pre-marriage wealth into your single-named gold account.

That is more of a myth than a reality. If you chart gold investment returns along with consumer price inflation since 1971 (when the US fully left the gold standard) it turns out that gold isn't a great inflation hedge. Other asset classes are probably a better choice for most investors.

It was a period of what was called "stagflation", economic stagnation combined with inflation. It was supposed to be impossible to have the two happen at once, and no one knew what the hell was going on. Gold seems attractive in periods of uncertainty.

Volcker and stagflation. Rather than fix the economy by raising rates and being accused of politics, Fed kept rates artificially low (which, incidentally, attributed somewhat to the US political shift that year).

Here's a better way to look at it.

What was 65 years(retirement age) year before each of these.I'll do it for you.

So 1930 - 65 = 1865. The end of the American Civil war.

1979 - 65 = 1914. The end of WW1

2009 - 65 = 1944. The end of WW2

Each of these events correspond with a major baby boom post war and subsequent major retirement period. These financial crisis are a consequence of major war.

Economists figured this out ages ago and now understand how to prevent future recessions.

So how about covid?

2020 - 65 = 1955 end of korean war.

It was simple to predict "covid" and guess what I was invested in on January 2020. Large cap healthcare. Big box consumer staples. All the stuff that would stay open.

Also an interesting discovery. No amount of money printing keeps the economy afloat, you must let it crash.

2040 is the next big one for vietnam, but that was a long war. Might not be the same. Might be harder to predict.

Peak blood lead levels.

~1980, ~2010, and ~2020 are the three times it was higher, inflation adjusted. The Great Depression era doesn't come close (and is also well outside of the 50 year window given).

Trading in gold was banned in 1933 in the United States. The price was set by the government at $35/oz. The ban wasn't lifted until 1974, at which time the price skyrocketed.

the gold price serves as an independent yardstick for the level of real inflation. it defeats the purpose to 'adjust for inflation'.

'adjusting for inflation, prices have been remarkably stable for the past century'

> for the level of real inflation

I'm not normally doing much business in gold, the value of gold compared to the dollar is nearly meaningless to me. I do often buy things like food and energy. To me the value of the dollar compared to a gallon of gas or a plate of food or a kWh of electricity is the "real" inflation.

The value of gold isn't "real" to me or most consumers.

prices, of all goods, inflate exponentially

the relative value of specific goods fluctuates within a small constant

in the long run, the exponential dominates the linear

----

thus the price of gold is a yardstick of the exponential inflation of prices, irrespective of the relative fluctuations of gold vs food vs energy

In an economy, gold is just one more good. Sure, we could use it as an inflation index. Or we could use gasoline, or new cars, or eggs, or any of a million other things. Why should we use gold as opposed to all those other things?

Or, here's an idea, maybe we should use a weighted index of several of those things as a measure, in order to prevent misleading data from the fluctuations in the price of any one item?

Hey, that idea sounds really great. We could create some normalized basket of goods consumers normally buy. Then we could chart that basket as some kind of index of consumer prices.

Nah. Who would do that. We can just look at the price of gold, that's all that really matters.

Peruse Purchasing Power Parity stats for that.

Exactly. Use gasoline instead.

See e.g https://www.macrotrends.net/1380/gold-to-oil-ratio-historica.... Over 80 years (since 1946), the ratio held stable within 10-40 range, with a few brief spikes. The variance from the average held in a band [-2x, 2x], with a few brief spikes of ~ +-4x.

See also e.g. https://www.creditdonkey.com/gas-price-history.html for the raw price of gasoline, exponentially shaped. The increase over 80 years (since 1946, to match the ratio dataset) is 15x.

Extra wrinkle. The exponent of the exponential is not quite constant over time, currency can debase much faster than one would naively expect by extrapolating historical trends.

Edit. For completness, the BLS inflation index tracks a price inflation from 1946 to 2023 of, guess what, 15x. https://www.in2013dollars.com/us/inflation/1946

> Or, here's an idea, maybe we should use a weighted index of several of those things as a measure

That's done already. More useful: such index as a ratio of wages. Say, [price of standardized basket of commodities] / minimum wage.

That would tell you how many # of paid work needed to (for example) fill a shopping cart with a week's worth of food + heating / powering one's home over that time.

("minimum wage" = applies to folks scraping by in low-paid jobs. Higher earners are living the good life anyway, imho).

Excellent idea. minimum / median / x% quartiles.

That is just not true. Inflation is not an immutable law of nature. In fact, we should expect to see the prices of certain commodities go down as technological advances drive efficiency and productivity. And in fact many times in the past we have seen the price of food, for example, go down relative to other expenditures.

inflation is emergent of interest. interest is multiplicative, which compounds into an exponential. sadly i am no boltzmann, so i can't provide a formal derivation -- challenge for the mathematically gifted amongst us.

The three lines above the last don't do anything to say why you'd want to use the price of gold for that yardstick. And once again with it being so detached from the actual reality of most consumers it seems to be a pretty poor one. In fact, the ending of "irrespective of the relative fluctuations of gold vs food vs energy" kind of alludes to its value being radically detached from things people actually care about. If the fluctuations of USD / Gold are so detached from things people actually care about, it seems like it is a worthless yardstick.

And here's the real question. If the price of gas and the price of food stays the same but gold goes to $9,000/oz, did my life change? No, not really. If the other prices stay the same but gold goes to $20/oz, did my life change? No. If gas goes to $50/gal, did my life change? Radically. If (index of food) goes 10x higher, did my life change? Radically. Which is the "real" inflation again?

I flatiron is a relative term. yes, if you define gold as the unit of value, then it can not inflate or deflate.

normally, when we talk about inflation. real value is the yardstick. ie. something more akin to the big Mac index.

The reasoning is correct but the conclusion is backwards IMO.

You should "adjust for inflation" (using other measures for inflation) to examine the current price of gold. If gold is still expensive, either the inflation adjustments are incorrect, gold is mispriced, or external force is driving demand for gold.

Put another way, because gold is an "independent yardstick" for inflation, you have to "adjust for inflation" to draw any conclusions about the current price of gold.

Doesn't it make much more sense to use the prices for usable goods and services as the yardstick? Gold is supposed to not lose value to inflation but that's not a proven rule is it?

The US real estate to gold ration has always facinated me:

https://www.longtermtrends.net/real-estate-gold-ratio/

If you bought a house with gold in 1890 or 2023, the price would be... about the same.

the old maxim is that an ounce of gold would always buy a man a new suit, a meal, and a place to sleep for the night

Lol I love this

So in terms of gold, real estate is currently kind of cheap?

Or gold is expensive.

I forget where I heard it. Supposedly the amount of silver needed to buy a goat during Roman times is similar to today.

Cold metal seems to act as cold storage of value across history.

>Supposedly the amount of silver needed to buy a goat during Roman times is similar to today.

Probably not during famines.

Ackchyually...if you compare ancient famine surge pricing to modern, stable, non-famine pricing then probably not. But go somewhere on earth where famine is still a real thing without humanitarian aid and compare famine-to-famine pricing. I imagine it would probably be similar.

That would be fascinating, if true. It requires balancing so many things. We keep mining, so supply is increasing, but so is population and thus demand. We keep making more efficient ways to mine silver which should make it cost more silver, but we are also getting more efficient at herding goats making it cheaper.

It's crazy that many factors could be/stay in balance. It makes me wonder whether those factors are actually separate or whether these factors scale based on some common element like population.

Would be even crazier if the causality flows from the amount of the mineral available - i.e. can't have a larger population without mining more of the silver (which could be correlated with mining a whole bunch of other minerals involved in the supporting economy etc.).

Hm, sources seem to vary a lot ... but they all seem to be within a single order of magnitude at least.

> Supposedly the amount of silver needed to buy a goat during Roman times is similar to today

Interesting factoid if true, but it's hard to see how this could be anything other than coincidence. The relative scarcity, and demand, for goats vs silver must have changed massively due to things like modern factory farming, modern mechanized mining, modern fiat currency, modern food alternatives, etc, etc.

So, if the price of goats in silver is in fact still the same, I don't think the takeaway should be that these two commodities can be assumed to still have the same relative supply vs demand of 2000 years ago, and that this proves that bullion is a good store of value (even if it is).

We can arbitrarily pick data points to prove a thesis, but that’s only one item. It is incredibly cheaper to do pretty much everything right now than it is during the Roman times.

https://news.ycombinator.com/item?id=30653366

Even the Romans had problems with debasement of the silver currency. As well as the real problem of a metal currency: specie shortage making it difficult to do large transactions at all sometimes.

Gilded Age 2.

But the gold can only recently be held in an ETC and would cost money to securely store for most of that time. The house could be rented and yield an income.

A house also needs upkeep. Usually that’s around the same amount as rent. In some markets like Munich rent is not even enough to pay that.

Just to be clear for anyone who didn't actually look at the graph, the ratio varies by about a factor of five over the last hundred years, with wild swings due to the Great Depression/WW2, what I assume is inflation in the 1970s, and the early-2000s housing bubble. And while the 1890s value is more similar to 2023, the ratio varied by tens of percentage points in the years around both of those dates. So it's not like the price of housing is stable if you use gold instead of dollars. (The post I'm replying to did not imply this. I mention it because there's a tendency to abuse these kinds of facts to construct neat little narratives about currency.)

> there's a tendency to abuse these kinds of facts to construct neat little narratives about currency

People really want to simplify a complex system into a short tale which wraps everything up with a little bow on top and blames it on their enemies. Not exclusive to goldbugs, though.

The stat I find most fascinating is the price of a bushel (60 pounds) of wheat over the last 750 years. In 1260 the price of wheat was 6-8 British shillings, aka 0.3 - 0.4 British pounds, which back then was actually worth 0.3 - 0.4 pounds of silver.

The price then bounced around 1 pound per bushel for the next 650 years or so.

And then I make the arbitrary but defensible switch to US dollars. Back then a British pound was worth about $5, and the price of a bushel of wheat has bounced around the $5/bushel mark for the last 100 years.

Today, the price of wheat is $6.50/bushel.

In other words, the price of wheat has tripled in 750 years in dollar terms. Inflation has tripled in my lifetime, but the price of wheat took 750 years to triple.

Maybe because Russia is buying all the gold: https://www.reuters.com/markets/commodities/russians-bought-... to circumvent sanctions: https://www.reuters.com/markets/russia-with-gold-uae-cashes-...

Russia is not alone on this: https://www.ft.com/content/76bddb74-4ddb-4e36-b70c-c0e26d8bf...

How does this track with bitcoin prices, out of curiosity? (Full disclosure: I own neither!)

BTC has drastically outperformed gold over last 10 years but is also extremely volatile https://inflationchart.com/gold-in-btc/?logarithmic=1

Zoom out a bunch on the gold price chart and you'll see it is volatile as well.

If you have to zoom out to see it though, it's by definition less volatile, surely?

Zoom out on bitcoin then and it looks less volatile too!

The price of gold priced in ₿, keeps falling.

Thanks for the link I guess I was wondering if bitcoin vs USD and gold vs USD have similarities. I remember thinking they would, but then finding out that at least during certain periods, bitcoin was boosted by low interest rates, as people would borrow money to bet on bitcoin. That led bitcoin to drop when interest rates went up.

I'm curious if the correlation is generally positive (as people seek both when getting out of cash) or negative (for the reason described above).

How can gold and stock prices be at record high at the same time?

Stock prices are not at record high though. About two years ago the S&P 500 was at $4,766.18 while today it is around $4,568.

4.16% difference?

It's not that hard. We printed dollars in record numbers (bipartisan - both Trump and Biden).

Of course assets will pop in dollar-terms. Fed's interest rate controls are bound to ease up, as the US economy is _addicted_ to getting injected with printed fiat currency.

Note that "stock prices" don't exist as a generalized statement. Individual stocks exist, and some of those may be at a record high, but most stocks aren't. Are you thinking of "these are the highest value companies we could aggregate" index funds, like the S&P 500 or the like?

As for the answer: because any unregulated commodity market will see that commodity priced based on demand, and demand creates demand.

Does this as an index track global anxiety?

It seems to track economic recovery, seeing the historical growth largely coming after major recessions/depressions. Such growth may be the intersection of people starting to be able to invest again, but still having anxiety related to the decline of the business environment they just went through, thus not wanting to invest in businesses.

I wonder if there is concern about the incoming boomer peak selloff, i.e. the larger than proportional age group coming into retirement and about to (presumably) sell off a bunch of indexes/stocks in their 401ks. Not sure what else could be a good hedge.

Different generations have different investment preferences, so the best hedges are going to be things Millennials want that Boomers do not typically own.

I've been trading gold and silver intermittently for decades

you see periodic life in the gold price movement, but mostly it goes nowhere

gold bugs rejoice in those few weeks in a decade when the price comes to life...but are mum on the fact that mostly it is a flatlined asset

I think gold is stable, money just lost a lot of value recently.

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