Gold bars
The concept of record-high gold prices is getting a thorough discussion, thanks to some observers who believe that any examination of this must involve the role of inflation. David Leonhardt at The New York Times, brought up the gold-and-inflation debate in a column this week, echoing earlier concerns expressed by Ryan Chittum of the Columbia Journalism Review.
Here's what they're getting at: Gold is not at a record high price these days, even when it surged above $1,400 (U.S.) an ounce this week, because the current price doesn't adjust for inflation. In today's dollars, Mr. Leonhardt points out, gold traded at $2,318 an ounce in 1980.
Gold investors love this statistic, because it suggests that critics of gold are off base: How can gold be in bubble territory when it languishes about 40 per cent below its high point? Or, to put it another way, gold still has a long, long way to go.
However, as someone who does throw around the words "record high" quite frequently, I tend to side with Paul Kedrosky. "Fair enough. But it's worth pointing out at least two things," Mr. Kedrosky said on his blog, Infectious Greed, in response to Mr. Leonhardt's column. "First, we are inconsistent in this pedantic fondness for pricing things in real versus nominal terms. Sometimes we do, but mostly we don't. Would it be better if we always did? Sure, but we live in a nominal world of prices not a real one.
"Second, and this is more structural, doing inflation-adjustments in a rapidly-depreciating currency is something of a mug's game. The dollar is a troubled currency, and has been increasingly so. We should be very careful about making broad statements [with respect to]inflation-adjustments in such a currency, in something the same way we wouldn't do inflation adjustments, in say, Zimbabwean dollars in the mid-2000s."