Gold is back above $3400 / ounce this morning.
Source: Kitco, Inc.
It last reached this level about a month ago.
Below, I peg the all-time inflation-adjusted spot closing price of gold at $3512 an ounce. So, just $100 to go until we set a new all-time record price of gold in real (inflation-adjusted) terms.
Who’s surprised?
It really shouldn’t be a surprise that the price is still rising, because the factors driving that haven’t changed.
First, every day is now Friday the 13th. Above, you see the new summer uniform for ICE raids. Those black balaclavas are just too confining for warm-weather abducting. This is a far more comfortable way to go about disrupting our domestic supply of cheap labor.
Second, the value of the dollar continues the little downward slide that began when Trump took office. Commodities (not just gold) are priced in an international marketplace. As the value of the dollar tanks, the cost of gold, in dollars, goes up, ceteris paribus. So far, this remains a relatively minor factor.
Third, the President is again talking about appointing an easy-money Chair for the Federal Reserve. This, in his usual even-handed and well-argued fashion by name-calling, as usual. The current Chair’s term runs through the middle of next year, and he cannot be legally removed. And yet the President is doing everything short of that. Easy money (higher inflation) is clearly in the cards, as soon as Trump gets his hands on the Fed. The only question is whether the Administration will suck the Fed into its self-generated chaos by illegally replacing the Chair of the Fed.
Source: Steel Canada.
Fourth, our pointless trade war is stalled at a damaging but almost completely arbitrary set of tariffs. For example, right now, the tariff on Canadian steel is 50%, up from 25%. That rate was chosen, apparently because Trump was pissed off that a court called him out on his flimsy “national emergency” excuse for raising tariffs in the first place.
He sure showed those damned Canadians a thing or two.
Fifth, the only budget bill in the Congress would greatly increase the rate at which the U.S. accumulates debt. That’s even if you accept all the rosy scenarios and wishful thinking baked into those cost estimates. We’ve already passed the point where debt accumulation was sustainable due to zero real (inflation-adjusted) interest rates, but rather than recognize that, the Trump administration’s response is (see “Third”, above).
Finally, Washington is getting ready for a Soviet-style military parade to celebrate the birthday of a draft-dodging President. And no major news producer even dares to mention the irony in this. So we have reached that toxic pomposity that was hitherto reserved for banana republics.
I mention that in case you needed somebody to wave a big red flag and shout “The American Century is now officially over”.
Don’t ask why the price of gold is up. Ask why anyone in their right mind would want to hold dollars now, if they had any alternative. That’s the question that will get you closest to the reality of the situation. The price of gold isn’t the problem. It’s a symptom of the problem. One of many symptoms of U.S. decline.
Addendum: A transparent calculation of the all-time high in the real (CPI-adjusted) price of gold.
The only plausible candidate for the all-time real price of gold was the high that gold hit in 1980. I did the rough calculation, above, to show that.
For an exact and official calculation, I need to find the highest gold price in 1980, then inflate that to the present, based on the Bureau of Labor Statistics CPI inflation calculator.
That first part turns out to be a surprisingly picky task.
It matters a lot whether you are talking about any one-instant-in-time price, the daily close, monthly close, or some average, up to and including a yearly average. Most of what you see published, as “the price of gold”, is monthly or yearly averages. These tend to be much, much lower than the observed daily high closing price.
The only high price we haven’t yet beat is the highest daily closing price.
I want the daily closing price. If you focus on anything else — such as annual or monthly closing price — we’ve already set a new inflation-adjusted record or monthly or longer average prices. For example, the highest monthly average (in real terms) was about $640, set in January 1980, which translates to about $2800 in today’s dollars.
It also matters that you find the “spot” price of gold, not the price of the futures contract. Historical daily data for futures contracts is more widely available than the daily spot price, but futures contracts tend to even out some of the extreme daily fluctuations.
Knowing the exact date of that high price is also critical, because inflation was still running above 10%/year in 1980. Here’s an example from the BLS inflation calculator (link). As you can see, you need to know what month gold hit that high, in 1980, to get an accurate calculation of the inflation adjustment.
The highest closing price for gold, in 1980, that I can find, from any apparently-reputable source, appears to be $875 an ounce.
But I’m sticking with what Google’s AI tells me. Google pegs the highest daily close at $850 an ounce in January 1980. This means that the all-time inflation-adjusted high price of gold was just over $3500 an ounce, set back in January 1980.
We’re still just a bit over $100 below the all-time high price of gold, in real (CPI-adjusted) dollars.
Conclusion
The current situation isn’t hard to understand.
If you trash-talk the guy whose job it is to maintain the dollar, and so trash-talk U.S. bonds as a risk-free investment, as part of a plan to expand an already-unsustainable level of Federal debt, while you disrupt international trade, and disrupt the domestic labor supply …
… you have to expect investors to react.
And they are. By tanking the value of the dollar, shunning U.S. Treasuries, and buying other assets. Amongst which is gold.
My best guess is that fallout from the Trump Administration’s economic misadventures is going to begin to hit in earnest this fall — Q3 2025.
As someone who has owned gold and tracked the price for decades, my guess is that, by that time, we’ll have had no problem at all, beating that old record.
Great if you own gold. Otherwise, the trajectory doesn’t look good from here on out. Enjoy the current benign economic climate while you may.
