Gold has hit a new record high, but is still not extremely high in real inflation-adjusted terms. The Fed’s balance sheet has radically steepened over the last decade, leading to an annualized monetary base growth rate of over 16%, well over an order of magnitude larger than gold’s world mined-supply growth. This intense monetary inflation has been the primary reason for recent inflation.
The Consumer Price Index (CPI) has proven to be an unreliable indicator, as it chronically understates real-world inflation. This chronic understatement has been politically motivated, as higher reported inflation limits government spending and results in higher prevailing interest rates.
While the price of gold has hit new record highs, it still remains far from the real peak it reached in late January 1980, when adjusted for inflation using the CPI. Therefore, there is room for further growth in the price of gold.
Contrarians continue to see the value in gold, particularly as it stays ahead of inflation. Nonetheless, investors are still attracted to gold due to its history of strong returns and its recent ability to draw record-high investment demand. As more records are predicted on the horizon, the trajectory of gold prices will continue to be closely monitored.
Overall, the upward momentum and continued potential for growth in the price of gold remains an intriguing prospect for both speculators and long-term investors. The consistent demand for gold serves as a reminder of the intrinsic value this precious metal holds in uncertain economic times.
