Gold, the Golden Constant, COVID-19, 'Massive Passives' and Déjà Vu
18 Pages Posted: 7 Aug 2020 Last revised: 22 Aug 2021
Date Written: August 5, 2020
Currently the real, inflation-adjusted, price of gold is almost as high as it was in January 1980 and August 2011. Since 1975, periods of high real gold prices have occurred during periods of elevated concern about high future price inflation. Five years after the real price peaks in January 1980 and August 2011 the nominal (real) prices of gold fell 55% (67%) and 28% (33%), respectively. Today’s high real price of gold suggests that gold is an expensive inflation-hedge with a low prospective real return. However, “massive passive” ETF financialization of gold ownership may introduce a period of “irrational exuberance”.
See our related work: The Golden Dilemma.
Keywords: Gold, Golden constant, Real gold, ETF holdings, Inflation, Hyperinflation, GLD, Fundamental value, Inflation hedge, COVID-19
JEL Classification: G10, G11, G12, G15, G28, G01, G02, E31, E58, N20
Suggested Citation: Suggested Citation