Gold's Real Inflation Adjusted High Is $7,150/oz

Gold
Gold is trading at $1.063/oz this morning and traded between $1,048/oz and $1,066/oz over the last 24 hrs. In EUR and GBP terms, gold is trading at €710/oz and £648/oz respectively. Gold continues to gradually eke out gains and consolidate at near record levels on continuing oil strength and dollar weakness. Buying of physical remains robust on all price dips and this bodes well for further record highs in the short term.

Most analysts have been wrong and bearish on gold in recent weeks, months and years and the predictions made by more bullish analysts that gold would reach its inflation adjusted high of over $2,300/oz were far from the consensus. But there is a gradual realization among some analysts that we are living in unprecedented financial and economic times and quantitative easing, near zero percent interest rates and the explosion of public debt on western governments’ balance sheets all mean that gold is very likely to reach its inflation adjusted high of 30 years ago at over $2,300/oz.

Indeed Bloomberg reports today that were the more accurate methodology of measuring inflation used in 1980 used today, then the real gold price high in 1980 would be $7,150/oz. The increasingly respected John Williams, an economist and the editor of www.Shadowstats.com told Bloomberg that the government has understated the cost of living over the past two decades with adjustments (hedonic adjustments etc.) in the way it measures the basket of goods and services monitored by the US consumer price index, or CPI.

Silver
Silver is currently trading at $17.70/oz, €11.84/oz and £10.80/oz. Silver rose to a recent nominal high $20.88/oz in March 2008. After an 18 month period of correction and consolidation, silver looks set to challenge that high in the coming weeks. We continue to be bullish on gold and particularly silver and believe that silver will likely surpass its non inflation adjusted high of $48.70 per ounce and its inflation adjusted high of some $130 per ounce in the coming years and probably sooner than even more bullish analysts expect.

Platinum Group Metals
Platinum is trading at $1,371/oz and rhodium is trading at $1,750/oz. Palladium is currently trading at $337/oz.

Disclosure: no positions

Comments

[DiggerUK:]

John Williams $7,150 golden tish tosh.
To say that government inflation figures can be skewed this way and that to the benefit of governments, causes less surprise than telling people that the earth is round, not flat.

What is more outrageous is the way it is now being presented as Bloomberg approved fact.
Were is the William's methodology? it is nowhere to be seen just a headline grabbing quote.
If anybody has the methodology used, as opposed to a pretty graph, please post it.
Another alternative is to stop inhaling conspiracy theories, and go with some facts.

Disclosure.
Long and large physical, 60% of portfolio.

Oct 20 07:50 AM

[Bill S. Friend:]

I have continued confidence in the value of gold and silver as opposed to equities or currency. After getting burned in real estate, and equities, the theroy that long term preservation of wealth can be maintained in precious metals persists, until the cockroaches, governmment, or corporations find some way of exploiting this last bastion. Personally I am pulling for the cockroaches! I certainly hope to see the gains the author promises, but maintain a firmer footing here on earth.

Oct 20 10:00 AM

[mloren:]

Your analysis and history of the price of gold is more evidence that it is likely an overrated commodity. More likely that gold will disappoint.

Oct 20 10:04 AM

[Angel Martin:]

Let's assume the CPI is a legitimate way to estimate the future gold price, and let's use Mr William's questionable statistics. The "Williams CPI" is up about 37 times its value in the 1920's. At that time the price of gold was $20.67, which would put a current estimate of gold at about $770

Oct 20 12:18 PM

[User 502614:]

Ready to jump into gold and silver ETFs for first time and would appreciate advice and specific symbols. thanks, lady investor of a certain age

Oct 20 04:16 PM

[5142152-337:]

502614:

Pleeeeeze, do yourself a favor, and save your hard earned money by taking the PHYSICAL road, NOT, repeat, NOT the ETF road.

Reason: Giving your paper money for paper gold and paper silver. If that sounds like a GOOD deal, then ok, I can't make you look further into the HAZZARDS of ETFs, BUT, if you think that EVERY ounce of gold and silver you purchase via ETF is REALLY "there" being held for you. Ah, my dear, I have a bridge to sell you at a great price (you know, the Brooklyn kind).

Do yourself a wonderful service and RUN, don't walk, the other way when the ETF gurus come calling.

Your purchase of gold and silver should be located in YOUR HOME SAFE, period. You know its there, you can sell it when you want to, or add to it, and not be concerned that its where its supposed to be.

I have ranted long enough. I think you get my point. Be well.

Oct 20 05:05 PM

[Dave Wrixon:]

I would tend to agree with that but it does indicate how far the dollar could potential fall.


On Oct 20 10:04 AM mloren wrote:

> Your analysis and history of the price of gold is more evidence that
> it is likely an overrated commodity. More likely that gold will disappoint.

Oct 20 05:50 PM

[Economic Ph...:]

If the inflation adjusted price of gold is $7150, then the price of silver would be $478 in order to preserve the gold/silver ratio of 1/15 in the 1980s.

Oct 20 06:22 PM

[Slvrizgold:]

Its not even necessary to have a home safe to hold physical gold. I can fit 1 million dollars of gold into a small shoebox. Gold can be hidden where NO ONE will ever find it if you use some imagination and ingenuity. Silver is another matter. I actually prefer silver's upside to gold. I would implore User502614 to NOT put ANY money in ETFs. Newbies are not educated about precious metals. ETFs are run by banksters - the same people who destroyed the financial system and the dollar. They HATE precious metals. Its a very ingenious system they have where they take billions of dollars and pretend to hold gold for you. There are many gullible people out there unfortunately.

I would ask anyone interested in gold to go to these free websites to learn more:
GATA.ORG
JSmineset.com
Goldseek.com
321gold.com
Gold-Eagle.com

Oct 20 10:44 PM

[picman:]

Slvr,

I have to disagree somewhat in your ETF warning. Yes, I agree that having physical silver bars is the best way to invest in the metal but the stock SLV is a winner and will continue to be as long as silver and gold keep climbing. I'm long on SLV and have already enjoyed nice gains. I still may buy some silver if I can find a seller of silver bars at market prices. Must admit I have not found such a source yet... any suggestions?

Oct 20 11:51 PM

[chux08:]

(GLD) = paper gold
(SLV) = paper silver

(GTU) = physical gold bullion backed Canadian based shares
(CEF) = physical silver (and gold) bullion backed Canadian based shares

I KNOW which I prefer and it ain't paper posing as real issued by Wall Street....

Oct 21 01:21 AM

[twitee:]

Is your gold really there?

On average there is more than one ownership claim on each gold bar conforming to London Good Delivery (LGD) standard on the "pool" of gold which acts as liquidity for the massive OTC gold trade based in London. Essentially, the market operates on a fractional reserve basis, but if a sufficient number of market participants become concerned about this and there is a stampede to take delivery of physical bullion, there is a risk of market failure.

Such a process could be delayed by central banks lending gold to the market, although this would likely be obvious by a spike in gold lease rates, or by a much higher gold price in order to encourage holders to sell bullion. In this scenario, the gold price could SOAR at any time and the gold market, which is subject to little regulation, is basically an accident waiting to happen; "

Or:

"There is FAR more gold bullion held in private hands than is acknowledged by current industry estimates. It is the large amount of additional gold on top of known gold stocks which provides sufficient liquidity to support the high volumes traded through London.

The most likely source for this gold dates back to the Japanese conquest of Asia from 1894-1945 when Japan is alleged to have looted the gold and valuables of 12 nations - it is best known as the story of Yamashita's Gold. If true, analysis shows that particularly heavy volumes of this gold may have been laundered into the London market during 1986-90 and the mid/late 1990s. In this scenario, the continued evolution of the gold bull market could be more protracted, if supplies of this gold continue to enter the market periodically."

Oct 21 03:50 PM

[twitee:]

Unless you are a large investor to actually buy large quantity of physical gold purchase, the paper Gold (ETF) or GDX is a safe bet as long as you don't bet your farm on it.

It would take few years to reach $2000, $3000 or $7000 estimated levels, meanwhile enjoy the ride!

Oct 21 03:59 PM

[AUandAG:]

(ETF) paper burns, gold doesn't... DO NOT BUY ETF'S
multiple parties have a claim on the same tangible asset. the government does not want any ETF auditing because this corruption depresses the price of physical purchases. Gold has less risk than silver, yet silver's risk is poised for higher returns, ie the poor man's gold will shoot higher after "the public" realizes that inflation protection is an absolute requirement.


On Oct 20 04:16 PM User 502614 wrote:

> Ready to jump into gold and silver ETFs for first time and would
> appreciate advice and specific symbols. thanks, lady investor of
> a certain age

Oct 21 06:43 PM

[AUandAG:]

we are in uncharted waters! it could take all of 1 newspaper article containing speculation (such as oil not being denominated in dollars) to shoot the price over $2000 in minutes.


On Oct 21 03:59 PM twitee wrote:

> Unless you are a large investor to actually buy large quantity of
> physical gold purchase, the paper Gold (seekingalpha.com/symbo...)
> or GDX is a safe bet as long as you don't bet your farm on it. <br/>
>
> It would take few years to reach $2000, $3000 or $7000 estimated
> levels, meanwhile enjoy the ride!
>
>

Oct 21 06:53 PM

[Albertarocks:]

On Oct 20 10:04 AM mloren wrote:

> Your analysis and history of the price of gold is more evidence that
> it is likely an overrated commodity. More likely that gold will disappoint.<

In what way will it disappoint? In that it hits $6,000 and not $7,000?

Oct 22 03:55 AM

[obuzzardo:]

Measurements of inflation are attempts to gage the changes in domestic purchasing power of a currency over time. During "normal" economic conditions that change can be significantly affected by supply and demand for the goods and services themselves. Also government intervention and policy play a significant role in distorting prices one way or the other.

These are NOT normal times.

One must also consider the strength of the currency relative to others and to gold. A currency "event" can throw prices up pretty fast. Supply disruptions too - such as might occur in a credit dislocation or currency collapse.

My point, is that making estimates of the future dollar price of gold based on measurements of long-term price changes of goods and services is flawed. It is unlikely to be a linear phenomenon.

As gold is a fairly stable pile (quantity) of money that does not swing wildly in quantity like fiat currencies then its purchasing power should remain roughly stable - with ups and downs more dependent on the supply and demand of particular goods and services.

So if one wants to play thought experiments on the future DOLLAR price of gold it might be better to look at the long-term changes in the supply of dollars (and other currencies) chasing that little pile of gold.

Oct 25 01:21 AM