NEW YORK – JANUARY 9: Gold bars and coins are seen for sale at Manfra, Tordella and Brookes, Inc. January 9, 2003 in New York City. The price of gold has risen nearly 30 percent over the past year as investors seek stability as war with Iraq becomes more likely. (Photo by Mario Tama/Getty Images)
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Buying gold means withdrawing resources from the wealth and information that create the private sector. This is because consumption is in most cases confirmation knownof exchanging access to resources (money) for existing wealth.
The above is a friendly attempt to refute Ken Fisher claim that investors are misinterpreting the gold rally. Who should I believe? Fisher’s extraordinary wealth born from a huge base of very happy customers tells readers to hear from John Tamny, and likewise he says John Tamney to hear Ken Fisher over John Tamny. However, a case will be made that gold is a better stock market indicator than Fisher believes.
Fisher writes that “Since 1974, after the US ended the final restrictions on the gold standard, gold has recorded an annual gain of 7.1% through September.” He adds that since 1974, US stocks have an annualized rate of 11.5%. Stocks clearly outperform gold, although the view here is that periods of significant underperformance or decline in gold play a very real role in stock market performance. See opening paragraph.
Fisher adds that gold isn’t even a great hedge against inflation. He points to 2022, when “inflation hit 40-year highs” amid gold falling more than stocks. It’s a great point, but one that supports the lone case of this column being 2022 not inflation. No doubt prices for a wide range of consumer goods soared, but as argued here, the latter was a result of the breakdown of global cooperation between producers (think global lockdowns led by then-President Trump in 2020) so that production efficiency plummeted. Fewer hands and machines operating in a symmetrical fashion are naturally associated with higher prices, but command and control is not unmistakably inflation.
And while it is true that 1974 marked the time when “the US ended the final restraints of the gold standard,” markets rarely wait for the final outcome of policy decisions. The average price of gold per ounce in 1974 was $158. In 1971, when President Nixon began severing the dollar’s relationship with gold, it was a shade above $35. As gold closed the 1970s it had risen to $513/oz, and by the end of January 1980, it had reached an all-time high of $875. That was inflation, consumer prices just an effect.
If you accept gold as the most reliable measure of inflation, stocks fell gradually during the 1970s (returning 1.6% annualized to gold 24 times). Conversely, and as gold declined during the 1980s and 1990s (inflation was contained), US stocks soared as wealth was removed from the proverbial coffee can and put back to work in pursuit of real wealth creation.
Unfortunately, the 2000s under President George W. Bush marked a return to the devaluation of the dollar as measured in gold. Gold closed the 2000s at $1,226/oz versus $266 in 2000, a 360% return for the yellow metal versus a 0.95% drop for the S&P 500 from January 31, 2000 to December 31, 2009.
Using gold as the true measure of inflation as true for the dollar, versus a CPI that at best measures the effects of inflation, it can be reliably said that the so-called “Bidenflation” quite simply wasn’t, while the Nixon/Ford/Carter inflations were, as were the Bush/Obama ones. Measured this way, gold as both a hedge against inflation and a signal of currency error hitting the economy becomes more apparent.
Fast forward to 2025, while gold is at all-time highs to the concern of those (including yours truly) who see it as an unbeatable inflation signal, it is “only” 1.6 times higher than 2020 compared to much larger jumps in the 1970s and 2000s. As for the rally in gold given what does it signal for its fall dollar, is relatively small compared to the previous ones. This perhaps explains the strength in stocks amid gold’s rally, while also raising the “invisible” question of how much higher stock returns would have been (think 1980s and 1990s again) if President Trump had not favored a weak dollar.
The main thing is that there is inflation as measured by the BLS (CPI) and there is inflation as measured in gold. If the latter is accepted as more credible, investors are worried about gold rates rising if history is any guide.
