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Investing In Gold Long Term Is A Losing Bet

Analyst, Author, and Owner of Kelsey's Gold Facts
February 22, 2022

INVESTING IN GOLD LONG TERM

Before the recent gold price rally, gold advisors and investors had begun the deferral process associated with their short-term expectations for the price of gold.

Most of them are still positive and optimistic in their projections but have become more fluid about when to expect higher prices. Generally speaking, the higher price expectations tend to be on the north side of $2000 oz.; sometimes much farther north.

When we look at a long-term chart of gold prices, it is reassuring to see the progression of higher prices over time. See the chart below which reflects gold prices over the past fifty years…

There is a sustained uptrend in the gold price over that time from $36 oz. to in excess of $1800 oz. currently.

The chart below reflects the same price plots but allows for the effects of inflation. Hence, the uptrend is not so clear and obvious…

In fact, the pattern is distorted considerably; and rather than a singular clear uptrend, there are two decade-long periods of rising prices separated by a twenty-year period of declining prices.

After the peak in 2011, the price of gold declined for five years before moving back up to a third peak in 2020. (see The Meaning Behind Gold’s Triple Top)

The three gold price peaks (1980, 2011, 2020) are all noted on the chart below…

All major turning points (1933, 1971, 1980, 2000, 2011) in the gold price prior to 2020 coincided with major turning points in the US dollar.

Gold is priced in US dollars and since the US dollar is in a state of perpetual decline, the US dollar price of gold will continue to rise over time.

However, there are periodic changes in US dollar valuations and these changes can last for years, such as 1980-2000 and 2011-2016. During such periods the price of gold can and does decline considerably.

THE MORE THINGS CHANGE

The gold price is always changing. Over the past fifty years, it has generally risen in a sustained manner. But the effects of inflation on the US dollar are volatile and unpredictable.

The dollar’s loss in purchasing power has been unusually subtle at times. During those periods, the price of gold doesn’t do much, or even declines.

The declines can be quite steep and last for years. We mentioned earlier the decline in gold between 1980 and 2000. The actual numbers are quite sobering.

From its average closing price of $678 oz. in January 1980 the price of gold spent twenty years working its way lower by sixty-three percent @ $250 oz.

The decline as stated is bad enough, but the continual erosion from the effects of inflation exacerbated the damage.

On an inflation-adjusted basis, the decline was more than eighty (83.3) percent. In addition, a long-term investor who owned gold at $678 oz. in January 1980 had to wait 31 years (2011) to get close to break-even.

The insult to the injury is that even after waiting for forty years, the gold price peak in August 2020 still did not exceed its 1980 peak in inflation-adjusted terms. 

The numbers now are even worse. Today’s equivalent gold price for the 1980 peak of $678 oz. is $2450 oz. With gold currently at $1871 oz., its price is cheaper by 24% compared to January 1980. 

THE MORE THEY REMAIN THE SAME

Gold’s value is in its use as money. That value is stable and constant. The price of gold increases to reflect the loss in purchasing power of the US dollar – nothing more and nothing else.

Most investors in gold aren’t investors at all. They are traders. As traders, they are short-term oriented, impatient, and have unrealistic expectations; especially as those things  pertain to gold. (see Gold Is Not An Investment – You Won’t Get Rich)

The problem for those who still labor under the delusion that gold is an investment is that time is NOT on their side.

Gold’s price rises in hindsight. It does so to reflect the effects of inflation that have already occurred and registered within the economy.

When the gold price peaked in 2020, it reflected a full ninety-nine percent decline in US dollar purchasing power over the past century.

Expecting more from gold at this time is unwarranted. (also see Gold Has Lots Of Potential Downside)

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Kelsey Williams has more than forty years experience in the financial services industry, including fourteen years as a full-service financial planner. His website, Kelsey's Gold Facts, contains self-authored articles written for the purpose of educating and informing others about gold within a historical context. In addition to gold, he writes about inflation and the Federal Reserve.

Kelsey 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! 

Kelsey Williams is available for private consultations, public speaking, and interviews at [email protected]


The average human body contains 0.2 mg of gold with the bone containing .016 ppm and the liver .0004 ppm.
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