Has Gold Only Remained Flat in Purchasing Power Over The Past 40 Years ?

[Pete]

I was reading some recent threads from fellow forum members considering trickle buying PMs for their kids future inheritance, so I started to wonder if this is such a good idea or not.
Looking at the spot price of gold in early 1980 it was around £300 per ounce and remained flat for the next 25 years.
Same story in late 2011 with no upside for the next 8 years.

HOWEVER

Going back to early 1980 when gold was £300 and came out of your salary I entered this value into the Bank of England Inflation Calculator.
The number that popped out for 2020 was £1,316 for parity so inflation created a multiple of over 400%.
Now check this against the current price of gold at £1,280 and what can you deduce ???
Maybe buying / cost averaging over long periods of time all you are doing is preserving wealth and not necessarily growing wealth.
Had you bought a property, then over the same period, you would most likely have doubled your wealth ( or much more in many parts of the UK ) in real terms.
Of course if you kept your money in the bank it would be worth only a quarter today in spending power.
So all that glitters is not gold !!
 

 

[pricha]

Diversification is the key. But i'll say this for gold. Unlike all my other investments, property , pension , savings etc.  is the rotten government know nothing about it.  What gold ???

[Martlet]

FTSE 100 was 620, so a tracker fund would be up 1200%.  Tracking the stock market is best long term, beats everything because it prices in everything..

Edited June 17, 2021 by Martlet

[Minimalist]

1 hour ago, Pete said:

Bank of England Inflation Calculator

How is the Bank of England Inflation Calculator an indication of inflation, when they hide inflation in their metrics?

[sixgun]

You says you have considered a drip feed of funds into precious metals. The sort of thing most of us do there. Not by so grand design but b/c we spend up what we have and then wait until next month for the next lot of play money.

You then go on to compare the performance of gold since the early 1980's. i took a look at what i presume to be an inflation linked chart of the price of gold in USD.

From this we can see in USD terms you would be quids in if you had invested in October 1970 which is the low point on the chart. Similarly you would have done very well if you invested in 2000. However if you bought all your gold at the peak on the chart in early 1980 you would have been losing every since.

If you have drip feed cash into your gold buying account since the early 1980's you would have been buying gold at all different inflation linked prices but most of them would have been less than today's price. So no, a drip feed approach to investing in gold would not have broken even - you would have made a significant gain. 

Edited June 17, 2021 by sixgun

[pricha]

There is gold and there is gold. Most people who buy physical gold buy coins. So what i mean is if you bought a few 1989 proof sovs when they came out you'd be laughing by now. 

[BYK]

Diversify. 

Allocate equal amounts to 

Tracker funds etfs or shares 

Physical gold and silver 

Property

That way you are covered. The first two you can buy with little cash or savings. Property you may have to save longer. So it will take time. However all 3 give you the best strategy to come out on top in the future. 

Plus I think buying physical gold and silver has more of an allure because its cool to say I have "physical gold or silver" compared to I have stocks or Property. So most people don't really care if it doesn't make money. Backing up your point that it just holds wealth. But I also agree with @sixgun if you buy at the right time it can generate a nice profit. But minus the storage fees and factor in how much you have (economies of scale) and your probably just breaking even. 

Confirmation bias and all that I suppose to some degree.

[sixgun]

Just now, BYK said:

Plus I think buying physical gold and silver has more of an allure because its cool to say I have "physical gold or silver" compared to I have stocks or Property.

i didn't know it was cool to say i have "physical gold or silver."
i lost all mine in a tragic boating accident.

Many here keep the metal themselves. Particularly if you have gold it is very easy to hide if you think about it.
Gold and silver are money. They have been for thousands of years. If they weren't, they wouldn't be manipulated like they are. The economic and financial data in the last couple of days should send gold and silver much higher but you see them falling off a cliff. These are the desperate thrashings of a dying animal. 

Property and stocks are in general in a bubble. Many of them will blow up. The same goes for much of the crypto. It is a craze. If the crypto token isn't part of a proper business which is starting to or actually doing business, it will fizzle out. It is like the dot com boom - lots of ideas going nowhere and on close inspection they were half baked ideas.
When inflation takes off, then property will likely take off. We will have to see what happens when furlough finishes and reality kicks in.

Edited June 18, 2021 by sixgun

[pricha]

Exactly . Wait till the Government can no longer spend money they don't have.  Then they have to tax their own natural supporters to pay for it all.  The blue wall will crumble. ( They have just lost a safe seat in a by-election. ) Once they turned on the free money taps they will find it virtually impossible to turn off without losing votes, even though the other parties just want to play the same print money game. With this background of free money (money created out of thin air ) and higher taxes for the most productive members of society i would certainly would like to own gold......  but unfortunately i also had a tragic boating accident. I crashed into six guns and lost the lot.    

[SidS]

The Tories face a future crisis for sure.

In much the same way as Labour, who once thrived in the late 1990s by appealing to a wide voter base are now irrevocably split between trying to appease the leave voting working classes and trying not lose the newer metropolitan remain voting, middle class woke. Irreconcilable really.

The Tories are building in their own future nightmare, the new ex-red wall leave voters they picked up in the last election who want investment and money spending, versus more traditional fiscally conservative/small government Tories. There's no way to keep both sides happy when the buck stops.

There's trouble on the horizon, politically and economically.

[GoldenGriffin]

On 17/06/2021 at 19:55, Pete said:

Going back to early 1980 when gold was £300 and came out of your salary I entered this value into the Bank of England Inflation Calculator.
The number that popped out for 2020 was £1,316 for parity so inflation created a multiple of over 400%.
Now check this against the current price of gold at £1,280 and what can you deduce ???

Real inflation is hidden from us all and spun in a way that's soft and sweet, like light, fluffy candy floss - when we eat it, it doesn't look and taste too bad at 1-2%, but underneath it's deadly, eroding our spending power and health because there are hidden dangers, with the actual rate of inflation and the high levels of sugar damaging our health and going unnoticed, but ultimately giving us all a health and financial scare at some point down the road.

Very interesting re BoE inflation calculator closely matching golds price today from 1980 @ £300 - to me, it suggests they've applied a low inflation rate (the manipulated figure to gold, that's all sweet and nice for the public to swallow) and not used real rates of inflation to price gold, inflation rates relating to housing for example.

I think the real rate of inflation will be priced against gold at some point and will be more than the 'soft, fluffy' rate we've been told for decades.

P.s. I need to buy a boat. 😅

Edited June 18, 2021 by GoldenGriffin
.

[27carrots]

23 minutes ago, GoldenGriffin said:

Real inflation is hidden from us all and spun in a way that's soft and sweet, like light, fluffy candy floss - when we eat it, it doesn't look and taste too bad at 1-2%

I don't know about that. Especially with food where they mask it with a price increase, shrinkflation and cheaper ingredients triple whammy.

[GoldenGriffin]

15 minutes ago, 27carrots said:

I don't know about that. Especially with food where they mask it with a price increase, shrinkflation and cheaper ingredients triple whammy.

Sorry I meant the government and Fed hide the real inflation when they release their figures, but we see the real inflation when we open our wallets.

[LawrenceChard]

On 17/06/2021 at 19:55, Pete said:

I was reading some recent threads from fellow forum members considering trickle buying PMs for their kids future inheritance, so I started to wonder if this is such a good idea or not.
Looking at the spot price of gold in early 1980 it was around £300 per ounce and remained flat for the next 25 years.
Same story in late 2011 with no upside for the next 8 years.

HOWEVER

Going back to early 1980 when gold was £300 and came out of your salary I entered this value into the Bank of England Inflation Calculator.
The number that popped out for 2020 was £1,316 for parity so inflation created a multiple of over 400%.
Now check this against the current price of gold at £1,280 and what can you deduce ???
Maybe buying / cost averaging over long periods of time all you are doing is preserving wealth and not necessarily growing wealth.
Had you bought a property, then over the same period, you would most likely have doubled your wealth ( or much more in many parts of the UK ) in real terms.
Of course if you kept your money in the bank it would be worth only a quarter today in spending power.
So all that glitters is not gold !!
 

 

Looking at the spot price of gold in early 1980 it was around £300 per ounce and remained flat for the next 25 years. This is not correct. It went down if anything, but that was after an unprecedented rise from $35 to $847 per ounce, so a major correction could only be expected. (sorry to swap currencies, but I am sure you can do your own conversions)

It hit bottom near of the end of Gordon (Golden) Brown's infamous and fatuous gold sales.

The hype for gold is nowhere near as bad as the hype for silver.

IMO, gold is better for protecting your wealth than creating (growing) it. Investment depends on timing.

"Had you bought a property, then over the same period, you would most likely have doubled your wealth." Yes, but don't forget the maintenance, property taxes (rates), and insurance.

"Same story in late 2011 with no upside for the next 8 years.", Once again, you have selected a date shortly after another big gold price rise due mainly to the global banking / credit / sub-prime crisis.

 

[SidS]

I've always measured inflation through chocolate bar prices.

In 1991, a Dairy Milk cost 15p, now it's about 60p-75p depending where you're shopping.

That's 400-500% price rise in 30 years. Now if inflation is at 2-3%, officially most years, then it shouldn't be so high.

[modofantasma]

In my eyes gold is seen as a way to preserve wealth not necessarily build it. If I was starting out with no assets I'd perhaps buy a little gold but be using the markets to grow my pot then perhaps property too. 

It was 'easier' to start with stocks and shares when I was younger as I could invest any amount and didn't need to get a mortgage for eg 

Then when I'd built that pot up cashed out and started on properties for flips and rentals. Whilst I do love a bit of saving in metals much higher returns can be achieved elsewhere 

[HawkHybrid]

4 hours ago, SidS said:

I've always measured inflation through chocolate bar prices.

In 1991, a Dairy Milk cost 15p, now it's about 60p-75p depending where you're shopping.

That's 400-500% price rise in 30 years. Now if inflation is at 2-3%, officially most years, then it shouldn't be so high.

15p to 60p is a 300% price increase(your original 100%+300% rise)

average inflation compounded over 30 years: 60p equates to 4.7%, 75p equates to 5.5%

 

HH

[Martlet]

5 hours ago, SidS said:

I've always measured inflation through chocolate bar prices.

In 1991, a Dairy Milk cost 15p, now it's about 60p-75p depending where you're shopping.

That's 400-500% price rise in 30 years. Now if inflation is at 2-3%, officially most years, then it shouldn't be so high.

But that's not how inflation is calculated, it uses a range of goods and services to arrive at a weighted average.  If you track one item you'll be way out of alignment.  Inflation number is a benchmark for prices, some things will be more, some less.  Everyone's personal inflation will be different because we buy different weights of goods and services. 

[Michal]

1 hour ago, Martlet said:

But that's not how inflation is calculated, it uses a range of goods and services to arrive at a weighted average.  If you track one item you'll be way out of alignment.  Inflation number is a benchmark for prices, some things will be more, some less.  Everyone's personal inflation will be different because we buy different weights of goods and services. 

I got great and honest definition for inflation. Inflation = increase of money in economy - economic growth. New definitions are only smoke and mirrors game used to complicate this subject. When calculation process isn't clear and honest it allows you to get any desired score by picking suitable data, so called "magic of statistics". Personal Inflation is just reflection of our habits in light of true inflation. Just my opinion, not necessarily right one. 😉

[27carrots]

7 hours ago, SidS said:

I've always measured inflation through chocolate bar prices.

In 1991, a Dairy Milk cost 15p, now it's about 60p-75p depending where you're shopping.

That's 400-500% price rise in 30 years. Now if inflation is at 2-3%, officially most years, then it shouldn't be so high.

That's because they realised if you charge £1 for 4 or 75p for 1 they would sell four times as much as good deals are more addictive than sugar.

[Jeffers]

As the Market Sniper says, with metals you are "wrong, wrong wrong, till you're right". I am not all in on gold, i have an amount that i see as my 'savings', which I will never aim to sell. If you are worried about the price of gold, you are holding too much.

[Martlet]

5 hours ago, Michal said:

I got great and honest definition for inflation. Inflation = increase of money in economy - economic growth. 

Its not the correct definition though. This is expansion of the money supply.  Its possible for money supply to increase and inflation increases at lower rate or not at all (as we've seen most the past decade); or inflation can occur without increased money supply (as happened frequently under gold standard).  This isnt something that has changed, its always been a complex statistical reporting, the point of it is to give an approximation across the whole economy. 

Individual goods and services are subject to supply and demand, technical advances and costs of production, that will raise and lower their price independently of other factors in the economy.  A chocolate bar might rise 500% in 30 years because increase cost of materials and labour abroad, cost of shipping and production, cost of marketing, and ultimately because the market will let them (large chunk of retailer margins). 

Edited June 19, 2021 by Martlet

[Michal]

15 hours ago, Martlet said:

Its not the correct definition though. This is expansion of the money supply.  Its possible for money supply to increase and inflation increases at lower rate or not at all (as we've seen most the past decade); or inflation can occur without increased money supply (as happened frequently under gold standard).  This isnt something that has changed, its always been a complex statistical reporting, the point of it is to give an approximation across the whole economy. 

Individual goods and services are subject to supply and demand, technical advances and costs of production, that will raise and lower their price independently of other factors in the economy.  A chocolate bar might rise 500% in 30 years because increase cost of materials and labour abroad, cost of shipping and production, cost of marketing, and ultimately because the market will let them (large chunk of retailer margins). 

Sure Mate, but let me stick to Milton Friedman's definition.

[KRO]

https://www.linkedin.com/pulse/gold-mother-all-buying-opportunities-back-70s-big-reset-ross-norman

[HawkHybrid]

Quote

Nope … I don’t sell gold … so not vested interest here … just my belief...

Ross Norman

CEO

Metals Daily

isn't it his job to tell people that something is happening 'now' with inflation and therefore the metals?

 

HH