Tuesday, December 5, 2023

Inflation in action - gold up, dollar down


I'm sure most of you saw a variation on this report yesterday.

The price of gold struck an all-time high on Monday, surging as much as 3% to trade at $2,135 per troy ounce as the US dollar fell.

Though gold futures have since dipped slightly — to roughly $2,080 in early morning trades — the price of the precious yellow metal hasn’t these levels since August 2020, when it hit its previous record-setting price, $2,072.49 per troy ounce.

Gold’s gains are part of a rally that began in November 2022 and has since worked in opposition with the US dollar, which has weakened as the world has become more volatile because of the conflicts in Ukraine and Israel.

The dollar experienced a 3.1% month-over-month dip on Monday against a basket of six other currencies, according to the Financial Times — a rate just slightly above its four-month low.

There's more at the link.

It's important to note that gold hasn't become more valuable, or more expensive, in and of itself.  Rather, it's that the dollar has grown less valuable over time.  It now takes more devalued dollars to buy gold that has held its value in terms of buying power over time.  The rampant printing of dollars by the US has resulted in the devaluation of its own currency - a result that was clearly foreseen and predicted by generations of economists, but ignored by our feckless politicians and bureaucrats.  However, since gold is limited to what can be dug out of the earth and refined, its supply can't be arbitrarily increased, so its value - its price - remains stable in real, non-inflated terms.

That's the essence of inflation.  A currency decays, becoming less and less valuable as more and more of it is printed.  The supply of goods and services people want to buy with it remains constant, or increases, depending on supply and demand and other factors - but the price paid for it is seldom determined by those elements alone.  Rather, the value of the currency used to buy it is weighed up by sellers, who decide whether it's still worth their while to accept the same price in that currency for what they're selling when the former has lost value, while the latter has not.  Result:  they ask more money for their product.

Things aren't more expensive.  The dollar is cheapened, devalued.  Hence - rising prices, of gold as much as anything else.



McChuck said...

The odd thing is that the price of gold over the last 10 years has not tracked well with inflation. What happened in June/July 2019 to spike the price up?


Anonymous said...

Gold should be at least $4,000 or above. But just wait for the hyperinflation to kick in...

Mind your own business said...

Things are more expensive if most of your assets are held in dollars. Which is true for the vast majority of Americans.

Anonymous said...

To my eyes the new ATH is being under reported at 2135. I personally saw pricing over 2146 Sunday evening on Kitco. A quick review, just now, at yahoo finance shows me a five minute candle spiking as high as 2152 on Sunday evening.

BGnad said...

Gold as a long term inflation hedge. Since the time of the Roman Empire, an ounce of gold would by you a quality standard infantry weapon (how much for a good AR?) or a good man's suit.
It moves around that a but, but the analogy holds.

Paul, Dammit! said...

I'm moving sums of money to Brazil on a weekly basis for petty construction costs on my house there. And yeah, the past few weeks, the plot of the exchange rate has started looking like a ski slope. Brazil's economy is limping along even worse than ours, supposedly... but they aren't printing currency like monopoly money.