Do Gold Price Movements Signal Future Inflation?

To a surprising extent, the price of gold has a surprising track record of accurately forecasting the direction on general consumer prices.

In the mid-1990s, economists John List and Mark Skousen tested three models for signals of future inflation – the Dow Jones Commodity Spot Index, the price of crude oil and the price of gold – to see which one best anticipated changes in the U.S. Consumer Price Index (CPI) between 1970 and 1992. Gold proved to be the most accurate, with a lag time averaging about one year.

However, this signal had its limitations. Although rising gold prices could indicate future consumer price increases, the changes in the gold price did not match up to the equivalent percentage hikes in consumer prices. Also, the moves in gold’s price did not correlate to the monthly changes in the CPI.

Also, this overall pattern has significant exceptions. When gold’s price soared to its then-record high over $1,900 in September 2011, the change in the Consumer Price Index remained relatively steady for the next two years. However, the surge in gold’s price starting in March 2020 did presage the highest CPI increases in four decades from late 2021 into 2022.

Obviously, the price of gold is only one factor, and a minor one, impacting consumer prices. Still, it appears to merit tracking the yellow metal’s price as a possible signal of future increases in the CPI.

Since Oct. 5, 2023, when the COMEX gold close was $1,816.50, the price of gold has increased about 37 percent. While this does not signal a surge in consumer prices over the next year to the same degree, don’t be surprised if they increase much more in the coming 12 months than they have in the previous year.

Correction to Last Week’s Column

Thank you to all the sharp-minded readers who caught and reported the math error in the quantity of gold contained in the 2024 Olympic gold medals. The six grams of gold content on the surface of these medals is 0.192926 of a troy ounce, 10 times what was stated last week. That makes the current gold and silver metal value of these medals about $950, not more than $500 stated in last week’s column.

Follow Up Development on the Column from Two Weeks Ago

The column from two weeks ago raised the question of whether there were too many mints producing coins. As reported elsewhere by Numismatic News, the board of directors of the Mint of Finland, Ltd. announced on Aug. 28 that it would terminate its operations. After fulfilling existing contracts, this mint is expected to close in the spring of 2025. One of the existing contracts of the mint is to strike three denominations of coins for the Central Bank of Colombia. A year ago, the Mint of Finland had spun off into an independent company its ownership of Coinverse. At the time, Coinverse was marketing coins from France, South Africa, Italy, Switzerland, Germany, Finland, Spain and Lithuania.

Answer to the Previous Trivia Question

Last week, I asked: What was the highest number to be used as the denomination on a national currency?

There is a tie between two issues. At the end of that nation’s bout of hyperinflation, Germany’s Reichsbank issued a 100 Billionen (100 trillion) Mark note authorized Feb. 15, 1924. In 2008, Zimbabwe issued a $100 trillion note near the end of that nation’s era of hyperinflation. Only the Zimbabwe note printed out the entire numeral of 1 followed by 14 zeroes.

There are few survivors of this German note, with pieces trading for thousands of dollars. When Zimbabwe’s currency collapsed in January 2009, massive quantities survived unissued. Initially, collectors could acquire uncirculated Zimbabwe notes for $3 or less. As supplies have been dispersed, collectors are now paying $75 and up for nice examples.

This Week’s Trivia Question

In what year and on what denomination did a U.S. branch mint issue some coins with the mintmark above the bottom of the wreath on the reverse and some coins with the mintmark below the bottom of the wreath? 

Come back next week for the answers.

Patrick A. Heller was honored as a 2019 FUN Numismatic Ambassador. He also received the American Numismatic Association 2018 Glenn Smedley Memorial Service Award, the 2017 Exemplary Service Award, the 2012 Harry Forman National Dealer of the Year Award, and the 2008 Presidential Award. Over the years, he has also been honored by the Numismatic Literary Guild (including twice in 2020), the Professional Numismatists Guild, the Industry Council for Tangible Assets, and the Michigan State Numismatic Society. He is the communications officer of Liberty Coin Service in Lansing, Mich., and writes “Liberty’s Outlook,” a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at www.libertycoinservice.com. Some of his radio commentaries, "Things You ‘Know’ That Just Aren’t So,” and “Important News You Need To Know,” can be heard at 8:45 a.m. Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio archives posted at www.1320wils.com).

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