Gold, the Golden Constant, and Déjà Vu

Currently, the real, or inflation-adjusted, price of gold is almost as high as it was in January 1980 and August 2011. Since 1975, periods of high real gold prices have occurred during periods of elevated concern about high future price inflation. Five years after the real price peaks in January 1980 and August 2011, the nominal (real) prices of gold fell 55% (67%) and 28% (33%), respectively. Today's high real price of gold suggests that gold is an expensive inflation hedge with a low prospective real return. The financialization of gold ownership by exchange-traded funds, however, may introduce a period of irrational exuberance. Disclosure: The authors report no conflicts of interest. The views expressed here do not necessarily reflect those of Tadas Viskanta's employer, Ritholtz Wealth Management. Ritholtz Wealth Management may hold positions in securities mentioned herein. Viewpoint is an occasional feature of the Financial Analysts Journal. This piece was not subjected to the peer-review process. It reflects the views of the authors and does not represent the official views of the Financial Analysts Journal or CFA Institute.