Gold?s dazzling rally has impressed all. The metal has gained more than $100 per ounce or 8.4% since the start of August. With the dollar expected to remain weak in the coming months vis-a-vis other world currencies, experts feel that the metal is poised to test $1,300 per troy ounce and maybe even higher in the next few weeks. However, it?s not that everyone who has invested money in gold would be minting millions during the current rally.
A close look at the inflation-adjusted gold price suggests that investors still have a long way to go before they actually start making profits.
As shown in the graph, the record gold price hit this week is far lower than the precious metal?s actual inflation-adjusted high set in 1980. Gold would have to almost double to $2,435 an ounce to exceed that high, nearly double the current price.
In other words, in 1980, though the gold price moved up sharply to around $700 per ounce?a price which is far lower than the current rate?investors made more money as inflation was low.
RBI data shows that during the 1980s, average wholesale price index-based inflation rose from 100 in 1981-82 to 165.7 in 1989-90.
In 1980, gold?s inflation-adjusted price was around an average of $754.34 per troy ounce, while the actual price was around $614.61. This divergence grew as inflation kept on rising alongside gold prices.
For silver, too, the picture is similar. The only difference is that silver has vast industrial usage and is not used just as an investment tool.