Is Vanguard Blogger John Ameriks Right That ‘It’s Too Late for Gold’?

Writing for the Vanguard Blog, John Ameriks offers these thoughts about how the world’s smartest investors are foolishly piling into gold and how some of the richest people in the world are deluding themselves if they think the metal will help preserve their wealth.

We’ve been hearing a lot about gold over the last few months, related to concerns about inflation, the creditworthiness of various governments, and fallout from the financial crisis—all against the backdrop of what is the most significant increase in inflation-adjusted gold prices since the early 1980s.

Over this entire 140-year period, the average price of one ounce of gold was $480 (in 2010 dollars). If the gold price remains stable through the end of this year—not a given by any means—there will have been only one other year in the last 140 (1980) in which the inflation-adjusted average daily price of an ounce of gold was higher than in 2010.

In other words, there was only one year in the last 140 when it would have cost you more in terms of foregone alternative goods and services to become the owner of an ounce of gold. These data show that during some periods of extreme inflationary or broader economic distress, gold prices have increased sharply, only to recede back to lower levels as things return to normal.

Of course, what is conveniently omitted from the discussion above is that gold was money during 100 of those 140 years – that’s kind of important. As for the future, somehow, it’s not clear to me that, this time, the gold price is going “back to lower levels as things return to normal” – whatever “normal” is these days.

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