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  • Writer's pictureRobert Baharian

This one chart...shiny gold

Why Gold US$3,000 is next - Bank of America

As Gold rallies to US$2,000 an ounce, we lift the hood on this thing and take a look at the price of gold adjusted for inflation. And this is what today's chart is about - the real price of gold.

Sure, it's not all flashy and headline-y, but it does appear to be making a run for it. As central banks continue to flood the system, we could see a new post GFC peak even in real terms. And even a possible challenge for taking peak price from the 1980's where we saw the real price of gold at almost US$2,300 - it's around 10% away from hitting a new peak in real terms.

Gold has helped investors cushion their portfolio from the recent market turmoil. However, it is probably the one investment that defies rationality. Its intrinsic value is in the eyes of the beholder. As you can see from the chart, it runs hot and peaks, withers away, and repeat. Investment turns into speculation and holders of the metal rely on the price rising even further so they can sell it to someone else for a higher price. In which case, gold is always a speculation, no?

Gold provides no income, unlike shares or property, and unless it is being consumed for jewellery, it has no other consumption purpose. Therefore, the only reason you hold it is in hope of the price rising.

Unless you are of the view that fiat money will implode, inflation is going to go wild, or we are on the brink of global war, then longer-term it's a difficult case to build for gold. I mean, where will you store it all and how will you transport it?


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