price of gold thread

(please don't post rubbish on this thread, and use it for educational purposes. Offer up alternative charts and factual articles only if you agree or not)

Much has been discussed on the price of gold forecasts. Charts for CPI (inflation) adjusted gold have been numerous. Everyone with access to outside air should know gold and silver are a few commodities that have not achieved inflation adjusted prices.

Some things I'd like to raise -

1. Gold peak in 1980-81 coincided with very high inflation rates at that time. So that peak is not the same as this peak (yet?) (it was a compounded peak)

2. Also, these inflation adjusted charts do not account for the USD values of that time also.

3. Using the 1980 peak price for equivalence after adjusting for inflation, is skewing the data in favour of gold bugs.

4. Using a more realistic, non-inflated gold price either side of 1980-81 might be more realistic to project a 'corrected' CPI adjusted gold price

5. THEN you need to adjust also for the deflation of the USD. (as we are now deflated some 25% of USD index parity. However, $1 today at 0.75 appreciates 33% in getting back to parity from present subdued levels.

6. 'real' inflation in 1980-81 was 14%. Much higher than it is at the moment.

Using a non-inflated 1980's era gold price, and adjusting for CPI, we are at this price this week (USD $1030 or there abouts).

The gold prices then needs to overshoot this (with current high inflation) by 33% to account for suppressed USD. Then the USD recovers and we see USD $1030 as the inflation adjusted number (again, without high inflation).

If inflation takes hold in 2010, then the effect is compounded, and gold will see the inflation adjusted peak of 1980 in a high inlfation 2009/2010. will be of the order of USD$2200, or +33% of this if the USD is still down (USD $2900).

If inflation does not arrive, then using 1980-81 to get USD$2200 as a target is meaningless due to the lack of inflation alone. In this case USD$1300 is a more reasonable average inflation adjusted price, and a non-inflationary environment. Adding 33% to this for the low USD dollar, and we 'might' see USD$1700 peak.

BUT - if those buying gold today, are using US dolars earned today, this is already 'inflated' money (caused by the low dollar) and this offset on gold is not warranted.

To end it, if the 'real' and 'adjusted' gold price as set by todays educated market (assuming deliberate attempts by CB's to settle on a real price) settled at USD$1300 before the dollar recovers, then on recovery of the dollar might see prices again go to $1000 (assuming recovery back to parity index, and without inflation).

That would be a reason why India is prepared to step up and pay USD$1000, thereby accepting a price 'floor'.

SO?
You need to compare 'real' inflation rates to annually adjusted CPI rates and account for USD worth. Simple ... NOT.

If we see a gold peak without inflation of USD$1300, you'd have to be happy with that.