Gold has always held a special place in the hearts of investors, representing a timeless symbol of wealth and security. Despite its allure, the price of gold can fluctuate significantly over time due to various market factors. In recent times, gold has experienced a period of relative affordability, making it an enticing investment option. In this article, we explore why it's cheap to buy gold at the moment by comparing its historic inflation-adjusted price.
Understanding the Historic Price of Gold
To comprehend the current affordability of gold, it is crucial to examine its historic price trends adjusted for inflation. Looking back over several decades, we can gain insight into the relative value of gold over time.
Gold Price Inflation-Adjusted Comparison
In the early 1970s, the price of gold was approximately $35 per ounce. Adjusted for inflation, this equates to roughly $200 per ounce in today's dollars. From this starting point, gold experienced a steady upward trajectory, reaching its peak in 1980 at around $850 per ounce ($2,800 in today's dollars).
However, following this peak, gold entered a multi-decade period of decline. By the early 2000s, gold's inflation-adjusted price had fallen to around $400 per ounce. It remained relatively stagnant until the early 2000s when it started to experience a gradual resurgence.
From 2001 to 2011, gold experienced a remarkable bull run, with its price surging to all-time highs. In 2011, it reached an inflation-adjusted peak of around $1,900 per ounce. This period coincided with economic uncertainty and the aftermath of the global financial crisis, which drove investors toward safe-haven assets like gold.
Why Gold is Currently Cheap
The subsequent years following the peak of 2011 saw a significant correction in the price of gold. By 2015, gold had fallen to around $1,050 per ounce. Since then, it has exhibited a relatively sideways movement, with some minor fluctuations.
Several factors contribute to the current affordability of gold:
Economic Stability: The post-financial crisis recovery and subsequent periods of economic stability have reduced the urgency for investors to seek safe-haven assets like gold.
Interest Rates: Higher interest rates can make alternative investments more attractive, as they provide better returns. With interest rates being relatively low in recent years, the opportunity cost of holding gold has decreased.
Strengthening US Dollar: Gold is priced in US dollars, and a stronger dollar typically leads to a decrease in gold prices.
Increased Market Confidence: The rally in global stock markets and increased investor confidence have diverted attention away from gold as a safe-haven asset.
Cryptocurrencies and Other Alternatives: The emergence of cryptocurrencies and other alternative investment options has diverted some investment demand away from traditional assets like gold.
While gold's price has experienced significant fluctuations throughout history, it is currently presenting a unique opportunity for investors. When comparing its historic inflation-adjusted price, gold is relatively cheap in today's market. Factors such as economic stability, interest rates, currency strength, market confidence, and the availability of alternative investment options have all contributed to its affordability.
As with any investment, it's essential to consider one's financial goals, risk tolerance, and consult with a professional advisor before making any decisions. However, for those seeking a hedge against inflation, a safe-haven asset, or a portfolio diversification tool, the current affordability of gold should not be overlooked. As you might have already guessed, gold can be owned in many forms, including solid gold jewellery from Lepus Jeweller.
Gold price chart data source: ShadowStats.com