Currently the real, 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 percent (67 percent) and 28 percent (33 percent), respectively. Today’s high real price of gold suggests that gold is an expensive inflation-hedge with a low prospective real return. However, “massive passive” ETF financialization of gold ownership may introduce a period of “irrational exuberance.”
To read the full paper, click here.
Cam Harvey is a partner of and senior adviser to Research Affiliates and professor of finance at the Fuqua School of Business at Duke University. His publ