Gold On The Way To $5,000 Per Ounce

goldAbout seven months ago I posted a story about the price of gold going up to $5,000+ per ounce. Since then there have been some ups and downs but the price has indeed continued to climb. Today the New York Times carries a Reuters Breaking Views commentary agreeing that we could very well be on the way to $5,000+/oz.:

It sounds like a gold bug’s dream. But looking back to the last inflation-adjusted peak price in 1980, it’s far from impossible that the gold price could soon go above $5,000 an ounce.

The potential level of a new high can be estimated in several ways. Based on consumer price inflation, the peak of $875 an ounce in 1980 is equivalent to about $2,300 today, almost twice the current gold price. But there’s a case for taking account of economic expansion as well as price inflation. The world’s economic output has increased about sixfold since 1980. Scale up the peak 30 years ago by that multiple, and the gold price could top out at around $5,300.

Gold can also be regarded as an alternative to money. Broad global money supply, known as M3, is now in dollar terms about 10 times what it was in 1980. The total gold supply has also increased to some 170,000 metric tons, from 110,000 tons over the same period, as more has been mined. Scaling up by money supply and deflating by the gold supply, the 1980 peak price would be equivalent to about $5,700 an ounce today.

Looking at money supply another way, today’s potential gold price would be a bit lower than that. A narrower measure of global money, M1, is currently estimated at about $17 trillion. If the 170,000 tons of gold mined through history were to substitute for this, the gold would be worth about $3,100 an ounce. But that wouldn’t account for the tendency of the thinly traded gold market to overshoot sometimes to the upside, as it did in 1980, and sometimes to the downside…

[continues in the New York Times]

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  • http://voxmagi-necessarywords.blogspot.com/ VoxMagi

    Warning for rabid goldbugs: if it all comes crashing down Road Warrior style like in every good paranoiacs wet dreams…if you can't eat it, drink it or shoot stuff with it it won't be worth a goddamn thing. See example A:

    A)

    Goldbug: “Hey…I have a shiny rock. It's a rare shiny rock. Give me some of your food and ammo and I'll share some shiny rock with you.”

    Survivor: “What? Are you fucking retarded? I don't need a shiny rock…I have food, water and ammo. Go fuck yourself.”

    End of Example A.

    • cc

      Nuh-uh! I'll be the king of the world with my gold!

      • http://voxmagi-necessarywords.blogspot.com/ VoxMagi

        then we will drink a toast to your gold covered skeleton with our water and fire a salute to you with our ammo :-)

    • Wreckingball

      The ability to to hold it's value against the dollar, increasing value in a declining economy, use as a refuge for investors in our current corpora-governmental “looters economy,” heavy buying by central banks and international banking monopolies…

      Oh wait, a handful of faceless posters on Disinfo think gold is stupid? IS IT TOO LATE FOR ME TO CHANGE MY ANSWER?!!

      Sorry dingbats, but I disagree. When it all came “crashing down” during the Great Depression, gold was deemed so valuable that the U.S. Government decided its citizens couldn't be trusted owning the stuff. And you can indeed feed yourself with it, as history has proven. It can even get you out a country who's inhabitants wish to round you and your family up and exterminate you.

      I do agree that growing and having a store of food and being able to protect yourself and your loved ones is also very important. But this is no reason to put down gold as a store of value.

      Also, why is it we don't we have a “special term” for those folks who are constantly trying to sell us paper? Especially after the current economic crisis, which we all now know was caused by “paper” sales from bank to bank. Might I suggest the phrase “stock hawks?”

  • http://voxmagi-necessarywords.blogspot.com/ VoxMagi

    Warning for rabid goldbugs: if it all comes crashing down Road Warrior style like in every good paranoiacs wet dreams…if you can't eat it, drink it or shoot stuff with it it won't be worth a goddamn thing. See example A:

    A)

    Goldbug: “Hey…I have a shiny rock. It's a rare shiny rock. Give me some of your food and ammo and I'll share some shiny rock with you.”

    Survivor: “What? Are you fucking retarded? I don't need a shiny rock…I have food, water and ammo. Go fuck yourself.”

    End of Example A.

  • cc

    While gold's value has been on the rise lately, the long-term rate of return is in the 4% range, which barely keeps up with inflation. According to Thomas Sowell, winner of the National Humanities Medal and one of America's top economists:

    “a dollar invested in bonds in 1801
    would be worth nearly a thousand dollars by 1998, a dollar invested in stocks that same
    year would be worth more than half a million dollars. All this is in real terms, taking
    inflation into account. Meanwhile, a dollar invested in gold in 1801 would by 1998, be
    worth just 78 cents. The phrase, “as good as gold” can be misleading as the phrase
    “money in the bank”, when talking about the long run.'

    http://www.altfeldinc.com/pdfs/BASICECONOMICS.pdf

  • Anon

    I keep seeing idiots swooning over gold as an “investment” and say we should buy it.

    Buy high and sell low? Wait a second…

  • http://sellgoldonline.org/ sell gold online

    Definitely that gold has a higher value nowadays especially most of the countries are still experiencing financial crisis. Selling your gold is one good option to get good cash but be careful because not all of them are giving you a very good offer.

  • Wreckingball

    The ability to to hold it’s value against the dollar, increasing value in a declining economy, use as a refuge for investors in our current corpora-governmental “looters economy,” heavy buying by central banks and international banking monopolies…

    Oh wait, a handful of faceless posters on Disinfo think gold is stupid? IS IT TOO LATE FOR ME TO CHANGE MY ANSWER?!!

    Sorry dingbats, but I disagree. When it all came “crashing down” during the Great Depression, gold was deemed so valuable that the U.S. Government decided its citizens couldn’t be trusted owning the stuff. And you can indeed feed yourself with it, as history has proven. It can even get you out a country who’s inhabitants wish to round you and your family up and exterminate you.

    I do agree that growing and having a store of food and being able to protect yourself and your loved ones is also very important. But this is no reason to put down gold as a store of value.

    Also, why is it we don’t we have a “special term” for those folks who are constantly trying to sell us paper? Especially after the current economic crisis, which we all now know was caused by “paper” sales from bank to bank. Might I suggest the phrase “stock hawks?”