‘The big education for me is that civilisation is fragile and can be destroyed in a heartbeat' - Jeremy Brade, former peacekeeper in Sarajevo.

Saturday, August 21, 2010

Gold, inflation and the Dow Jones Industrial Index

Republished from the Broad Oak Blog:

I give below two charts that look at how gold has fared since President Nixon de-linked it from the dollar in 1971. In inflation terms (as measured by the US CPI-U), gold now worth is almost twice as much as its long-term average; but in turn, the Dow is still running very high against gold.

It may or may not be the case that gold is overpriced (perhaps we should be looking at inflation as measured by average earned income, or GDP, or something else) but either way, the Dow is still extraordinarily high. It does indeed look as though there was a "new paradigm" from the early 1990s; but perhaps a dangerously misleading one. Will gold double? Will the Dow halve?

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Sobers said...

I would like to see the price of gold vs the price of more stable goods - I don't trust the inflation indices to be an accurate measure of inflation. The Mars bar index would be a good option, also the price of a basic Ford family car - Cortina, followed by Sierra, now Mondeo.

Sackerson said...

Not cars. My first, a Nissan Micra, cost £6k in 1989,and its equivalent today (different make) also costs £6k. Mars bars would have to be costed per gram as I think the size may have changed as well as the price, also there's the question of competitive supermarket discounting.