Latest Inflation Numbers and Discussion

[Fermion]

And that doesn't count storage costs if you wanted to hold physical gold.

Mason jar: $0.79, which works out to like $0.02 per year.

 

[MichaelB]

To be a useful store of value against inflation the price of gold should respond to short term changes in CPI. If it takes a decade or two to catch up it’s not a useful option. A look at the inflation adjusted price of gold - US$ and US CPI - shows long periods of loss of value. See here

In effect, gold is not useful to protect against inflation. Gold purchased in the year 2000 has lost 1/3 of its inflation adjusted value.

Over time the best store of value has been US equities. Over short periods of time of 1-2 years, inflation adjusted bonds purchased new and held to maturity.

 

[Koolau]

Remember the Twilight Zone episode "The Rip Van Winkle Caper". Robbers stole a shipment of large gold bars and then hid in a cave with "coffins" that put them in a state of suspended animation for 100 years. When they wake up, their greed ultimately kills them, but we find out that gold is now worthless because it can be manufactured.

I always thought they did that episode all wrong. They should have stolen cash. Then, after 100 years, they would find out that, indeed, the cash was worth practically nothing - or no longer existed. That not only would be "reality" it would be believable - because we've ALL experienced it. Just thinking about my buddy who (in 2022) bought his 2004 Corvette for $20K. I bought a brand new one in 1969 for less than 5K.

While that's never happened to gold (and, I submit, never will) every currency ever created loses value (most of it) over 100 years. In fact, most currencies of 100 years ago - no longer exist (at least if you discount "renaming" them - like "new franks" for French franks,etc.)

 

[copyright1997reloaded]

A gold price of $35 per oz. was set by law until 1971 rather than by the market, so that is somewhat misleading. I would look at my adult life instead. When I graduated from college in May 1981, it was $479 per oz. It is $1655 today. That's a compound growth rate of 3.05%, and only 0.11% more than inflation over the same period. And that doesn't count storage costs if you wanted to hold physical gold.

So it was an excellent hedge as measured 1971 to today.

 

[JoeWras]

I always thought they did that episode all wrong. They should have stolen cash. Then, after 100 years, they would find out that, indeed, the cash was worth practically nothing - or no longer existed. That not only would be "reality" it would be believable - because we've ALL experienced it.

Heck, I'm going to Canada next year and I'm wondering if my bills and coins for my 1992 trip will still work.

 

[Koolau]

To be a useful store of value against inflation the price of gold should respond to short term changes in CPI. If it takes a decade or two to catch up it’s not a useful option. A look at the inflation adjusted price of gold - US$ and US CPI - shows long periods of loss of value. See here

In effect, gold is not useful to protect against inflation. Gold purchased in the year 2000 has lost 1/3 of its inflation adjusted value.

Over time the best store of value has been US equities. Over short periods of time of 1-2 years, inflation adjusted bonds purchased new and held to maturity.

Keep in mind that the issue you point out with gold (doesn't track daily inflation) is true of all "real" things (farm land, houses, commodities, collectibles, art, antiques, etc.) Yet most of us own a couple or more of these in one form or another. It's apples and oranges comparing gold (or PMs) to equities. I agree that equities are usually the best way to keep up with inflation on a shorter term basis (a few years.) But I've seen sources suggesting that gold smooths the ride of a typical portfolio. It's not just about inflation - it's a way to (hopefully - and for a time) pick non-correlated assets.

Gold is very much a YMMV situation and isn't for everyone. Like anything else, most folks should avoid investing in things they don't like or understand. That's a recipe for disaster.

 

[W2R]

Oh geez...if my electric bill was $29,000 a year I would either be rich or broke.

That's very high! Even in Louisiana, which has very hot summers that require lots of AC, my electricity costs less than $1,000 a year.

If they told me it was going up to $29K, I'd probably have to turn off the AC. And New Orleans without AC would definitely be the Hot Place.

 

[yhoomajor]

Gold is not meant to be a short term hedge against inflation. It is an insurance that is generally passed down from one generation to next. From one kingdom heir to next... and so on.

My grandparents received some from their grandparents. I received some (its small in grand schema of things). And I will pass it down to my kid. It is an insurance passed down to next generation.

It's value (barter value) fluctuates in short term. Today you can get ~$1600 for it. Few hundred years back, you could pay someone week worth of work with that in gold. Or farm grains (barter).

Gold never fluctuates. It doesn't go up or down with time. One Oz of gold will still be one Oz of gold 100 years from today. Governments and kingdoms throughout history have tried to introduce other means of barter (like Fiat currencies of today). Problem with fiat currency is that.. you can print all you want. And corrupt politicians are always eager to print some more to buy their votes. It doesn't cost them anything. It's fiat. So Re-distribution of wealth is pretty easy with fiat and modern governments are good at it. Re-distribution of wealth is very hard with gold based system.

But we have to live in current time and current world. So we will have to live in a fiat world. But, a 1-5% in gold/silver as insurance is not a bad idea if you have kids you want to pass on some.

 

[MichaelB]

Gold is a great option for people who live in regions with a long rich history of invading armies, like Europe, where people regularly had to flee and needed portable wealth. Not so the US. The only place I know in the US that is regularly invaded is South Florida each January, and the invaders are kind enough to leave lots of money behind and not overstay their welcome.

The opinions on gold are not data based but dogmatic, and we all make our choices. The only gold I buy is for DW, and in small quantities. No room in my portfolio for gold.

 

[audreyh1]

Gold as an inflation hedge? I forget which year but at the least last Fall maybe it was 2 years ago spot gold was a little above $1960 and I think it actually got above $2000 for a short time. Today gold is around $1670. So that's a $300+ drop in value but the clowns selling gold are making money.

Yep!

 

[Chuckanut]

Gold talk reminds me of Crypto talk a while back. (Have you checked Bitcoin lately?)

Both remind of the 70's and 80's when sellers claimed to help people fight inflation by throwing their money away on what I believe were foolish speculations. Just my opinion. YMMV.

 

[Closet_Gamer]

That's very high! Even in Louisiana, which has very hot summers that require lots of AC, my electricity costs less than $1,000 a year.

If they told me it was going up to $29K, I'd probably have to turn off the AC. And New Orleans without AC would definitely be the Hot Place.

Yes, totally insane. British energy was already very expensive. Gas was around $7/US gallon when I moved there in 2019 if I recall correctly. It was almost $12/US gallon when we left to move home.

Our house/property was quite large and we had a pool which drove the electric up, but $29K/year? Insanity. We would have moved.

 

[copyright1997reloaded]

Gold priced in dollars is being impacted by the strength in the US $.

In 2022, it is UP 5.3% in Euro's, up 11.7% in pounds, and up 11.9% in yen.

"The one-eyed man is king in the land of the blind." The US $ is that one-eyed man, and places like Europe and Japan are the land of the blind. Europe is going to be hammered this winter, and Japan has gone crazy trying to leave their interest rate at 0.25%. (Resulting in a carry trade that is hammering their currency.)

We need to be asking ourselves what happens when this reverses...or even worse continues (continued $DXY strengthening would mean that Europe/Japan are falling apart - the Euro makes up 57.6% of the U.S. Dollar Index).

But the nice thing about ER.org is that everyone gets to give their opinions, including how gold is like crypto or a con game. To each their own I guess.

But I wonder - living in a country with 30+ trillion in debt plus tons of off-book debt, awash in excess money creation, out of control deficits (which will be impacted with rising rates), and societal issues that seem to be getting worse by the day - whether having all/most of my assets in that fiat currency is such a good idea. But hey, each of us has to live with our decisions.

 

[jldavid47]

So it was an excellent hedge as measured 1971 to today.

Actually only from 1971 to 1980.

 

[copyright1997reloaded]

Actually only from 1971 to 1980.

Strictly speaking:
No, from 1971 to 1980 it was negatively correlated with more beta. (Which is a good thing if you were holding it. )

Hedge:

A hedge is an investment that is made with the intention of reducing the risk of adverse price movements in an asset. Normally, a hedge consists of taking an offsetting or opposite position in a related security.

(emphasis added)

So if gold went up at the same rate as inflation, it would be a perfect hedge. Gold was $37.33 at 1/1/71, $589.50 at 12/31/1980, which is much more change than inflation during that period.

Just messing with you a bit. Sort of.

 

[jldavid47]

Strictly speaking:
No, from 1971 to 1980 it was negatively correlated with more beta. (Which is a good thing if you were holding it. )

No. It was positively correlated with inflation. Beta is just slope.

Hedge: A hedge is an investment that is made with the intention of reducing the risk of adverse price movements in an asset. Normally, a hedge consists of taking an offsetting or opposite position in a related security.

(emphasis added)

Yes, and the asset here is cash (i.e. value of the dollar), not inflation. The negative correlation was with cash, not inflation.

So if gold went up at the same rate as inflation, it would be a perfect hedge. Gold was $37.33 at 1/1/71, $589.50 at 12/31/1980, which is much more change than inflation during that period.

Just messing with you a bit. Sort of.

The effectiveness and performance of a hedge depends upon how much you put on. The fact that gold increased faster than inflation is not relevant. Gold was, in fact, a hedge against inflation in the 1970s. It was also a blow-out winner meaning if you had put your dollars in gold in 1971 and sold in 1980 you would have had more inflation-adjusted dollars than when you started. That made gold more than a hedge, it made it a great investment. hedges sometimes work out that way. It hasn't been a great investment (or hedge) since.

Good luck messing with me on statistical matters. I have a MS in Statistics and a minor in Economics.

 

[copyright1997reloaded]

No. It was positively correlated with inflation. Beta is just slope.


Yes, and the asset here is cash (i.e. value of the dollar), not inflation. The negative correlation was with cash, not inflation.

Yes, you are correct. While I typed inflation, I was thinking cash. It sucks to get old.


My original point was that an asset that from 1971 to today had almost exactly the same % change as CPI is by definition a good hedge (as measured over that timeframe).

None of it really matters - past performance does not necessarily predict future results.

Speaking of the present, anyone out there noticing CDS activity on Credit Suisse? Their CDS's are approaching levels of 2008 near the Lehman collapse timeframe.

Things are starting to get "messy" in FX and bond land. $TLT (20-year corporate) off another 1.9% today and now decidedly below June lows:
http://tos.mx/eL3qkbo

 

[Koolau]

No. It was positively correlated with inflation. Beta is just slope.


Yes, and the asset here is cash (i.e. value of the dollar), not inflation. The negative correlation was with cash, not inflation.


The effectiveness and performance of a hedge depends upon how much you put on. The fact that gold increased faster than inflation is not relevant. Gold was, in fact, a hedge against inflation in the 1970s. It was also a blow-out winner meaning if you had put your dollars in gold in 1971 and sold in 1980 you would have had more inflation-adjusted dollars than when you started. That made gold more than a hedge, it made it a great investment. hedges sometimes work out that way. It hasn't been a great investment (or hedge) since.

Good luck messing with me on statistical matters. I have a MS in Statistics and a minor in Economics.

Yeah, and you know what they say about statistics.

 

[copyright1997reloaded]

The Bank of England (BOE) has now restarted QE after their currency got wrecked and bond yields going parabolic.

Of course, it is "temporary and targeted" (perhaps they should have just said "transitory" ) opcorn

 

[Breedlove]

I seen today we could return to the 1970s where the markets go no where. …Be happy what you have .

 

[aja8888]

The Bank of England (BOE) has now restarted QE after their currency got wrecked and bond yields going parabolic.

Of course, it is "temporary and targeted" (perhaps they should have just said "transitory" ) opcorn

Love these Brits initiating a big tax cut for the wealthy. It blew up in their face:

Professor Richard Murphy tweeted: "The Bank of England has restarted quantitative easing today precisely because the Truss government has failed to manage the economy – a staggering achievement in three weeks."

The crisis was triggered by Kwarteng’s mini-budget on Friday when he unveiled a massive £45 billion tax cut funded by Government borrowing.

 

[11522914]

Love these Brits initiating a big tax cut for the wealthy. It blew up in their face:

A huge tax cut, funded by additional debt, in a rising inflationary environment.

You just can't make this stuff up [emoji15]

 

[copyright1997reloaded]

A huge tax cut, funded by additional debt, in a rising inflationary environment.

You just can't make this stuff up [emoji15]

Don't worry, it will be repeated here.

Regardless of whether it is a tax cut funded by additional debt, or spending programs that increase debt, or just plain "old" MMT the net result is the same. It is fiscal stimulus and increases debt.

All good, the Brits have just turned that money printer back on....as will we.

 

[aja8888]

Don't worry, it will be repeated here.

Regardless of whether it is a tax cut funded by additional debt, or spending programs that increase debt, or just plain "old" MMT the net result is the same. It is fiscal stimulus and increases debt.

All good, the Brits have just turned that money printer back on....as will we.

If that happens here (anytime soon), Powell is out and the market will go to the moon. Get your cash ready!

 

[copyright1997reloaded]

If that happens here (anytime soon), Powell is out and the market will go to the moon. Get your cash ready!

Right. This *is* the main reason why I didn't sell more than I have (about 47% equities as of this past weekend, drifting downward as the market continues to sell off).

So far that (keeping about 50% in) has been a bad decision.