This week, the price of gold reached an all-time high price against the U.S. dollar. It closed Wednesday this week on the COMEX at $1,953.50 per troy ounce, well above even intraday gold prices during the previous peak in September 2011. Gold had previously set all-time high record prices against almost every other world currency last week.
However, this record-high gold price needs to be noted with an asterisk. The reason the asterisk is needed is that the value of the U.S. dollar itself has declined over the years. As a consequence, the price of gold this week, if compared to a U.S. dollar of consistent purchasing power, is lower than the previous peak price in September 2011 of about $1,924 and even further below the January 1980 peak of about $850.
To give you some idea of the instability of the value of the U.S. dollar, just compare the M2 definition of the U.S. money supply, courtesy of the Federal Reserve Bank of St. Louis:
January 1980: about $1.5 billion
September 12, 2011 $9,529.8 billion
July 13, 2020 $18,399.9 billion
If this data were accurately indicative, would it take a current gold price of $3,715 to top the September 2011 peak or more than $10,427 to surpass the January 1980 top?
Another way to try to gauge the change in the value of the U.S. dollar is to compare the official Consumer Price Index changes. On its website, the U.S. Bureau of Labor Statistics only goes back to January 1990, but it reports that the average of all items consumer prices for all urban consumers establish a benchmark of 100 for the years 1982-1984. On that basis:
January 1980 less than 100
September 2011 226.889
July 2020 257.797
If this data is correct (and I am quite confident it is not accurate), gold today would need to surpass $2,186 to exceed the September 2011 peak, or well above $2,191 to be higher than the January 1980 high.
There are almost as many different ways of calculating how high precious metals prices would need to rise to really reflect an all-time high in purchasing power as there are analysts of precious metals markets. None of these calculations stand out as being THE correct one.
Still, it is obvious that the price of gold today would need to rise much higher to honestly represent an all-time record high price once you adjust for the impact of inflation of the money supply. However, for purposes of public consumption, the news headlines of “record high gold prices” will certainly prompt a new surge of gold buyers and sellers.
At least analysts are not yet confounded with whether or not silver is at all-time high prices. At Wednesday’s COMEX close, the silver spot price of $24.29 was less than half of the peaks it reached in January 1980 and at the end of April 2011. The COMEX silver close of $24.48 on July 27, 2020, was the highest since Aug. 27, 2013, which is still a nearly seven-year high.
Patrick A. Heller was honored as a 2019 FUN Numismatic Ambassador. He is also the recipient of the American Numismatic Association 2018 Glenn Smedley Memorial Service Award, 2017 Exemplary Service Award 2012 Harry Forman National Dealer of the Year Award, and 2008 Presidential Award winner. Over the years, he has also been honored by the Numismatic Literary Guild (including twice in 2019), Professional Numismatists Guild, Industry Council for Tangible Assets, and the Michigan State Numismatic Society. He is the communications officer of Liberty Coin Service in Lansing, Michigan and writes Liberty’s Outlook, a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at http://www.libertycoinservice.com. Some of his radio commentaries titled “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 AM Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and become part of the audio and text archives posted at http://www.1320wils.com).