Gold’s next hurdle is 1980’s inflation-adjusted peak
By Claudia Assis, MarketWatch
SAN FRANCISCO (MarketWatch) — Gold hit a long-anticipated high-water mark Friday, briefly breaking through $1,300 an ounce. But the precious metal still has a long way to go to reclaim its inflation-adjusted all-time highs.
A gold investor who bought an ounce of the metal at its January 1980 peak would need gold to advance by more than $1,000 an ounce from today’s record levels to come out ahead when 30 years of inflation are taken into account.
People who bought gold in 1980 “have not even halfway broken even,” said Jon Nadler, a senior analyst with Kitco Metals.
On Friday, gold for December delivery, the most active contract, posted an intraday high of $1,301.60 an ounce and closed at $1,298.10 an ounce on the Comex division of the New York Mercantile Exchange. That was its sixth record high in the past seven sessions. Read more on metals stocks.
The $1,300 mark “was the line in the sand between bulls and bears,” said Adam Klopfenstein, a senior market strategist at Lind-Waldock in Chicago.
Gold bulls had been yearning to cross that mark since gold first made forays into record high territory in May, amid the flare-up of the European debt crisis. Even many gold bears had admitted gold was on track to hit $1,300 an ounce later this year or next year.
But the gold standard, so to speak, remains beating that 1980s real-term record. Holding gold comes at a price; unlike bonds or blue-chip stocks, the investment carries no yield or dividend payout, and the investor typically bears some cost for storing the gold.
For a gold trade to be worthwhile, prices need to rally enough to make up for the reduced purchasing power of an investor who sits on his gold holdings over the years.
Panic driven
Whether gold will advance to the 1980 levels, and when, is of course open for debate.
A different set of concerns faced investors then. Gold hit a record high of $875 an ounce on Nymex in January 1980, about two months after the start of the Iran hostages crisis and less than a month after the Soviet Union invasion of Afghanistan. That’s equivalent to about $2,318.84 an ounce in today’s dollars.
“Then it was panic buying, and you had a very nervous country,” said Scott Meyers, a senior market analyst with MF Global’s Pioneer Futures in New York. The U.S. was stunned by the Iranian Revolution and the subsequent hostage situation in the U.S. Embassy in Tehran, “and the only place for people to offset that fear, from a portfolio standpoint, was gold.”
Inflation in the U.S. had jumped into the double-digits, eroding investments like bonds.
There were no other U.S. futures markets in early 1980s, making gold attractive for investors seeking to play international and geopolitical upheavals.
Gold itself was a newfangled form of investment. The U.S. government had abolished Depression-era restrictions on owning and trading gold only five years earlier. Very few possessed any expertise in gold investing.
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