Lately, the media has been abuzz with reports of gold prices reaching record highs. Reputable sources like CNN, The Wall Street Journal, Bloomberg BusinessWeek, and The Associated Press have all recently made these claims. It sounds good, but unfortunately, it is not true. Gold has yet to reach its all-time high.
Gold prices are only at record levels if those measuring fail to make adjustments for inflation. To avoid making claims of meaningless record highs (ex. tomatoes reach record high prices), inflationary adjustments should always be made. It goes without saying that the value of the dollar today is not the same as it was in the year 1980, or 1990 for that matter.
The actual record high gold price occurred three decades ago, when it reached $2,318 in 2010 dollars. This is 71 percent higher than the so-called record price of $1,402.80 per troy of last month. At issue is not just a mathematical equation, but also a simple truth. Misleading the public in such a way can cause investors to believe they are in a different financial position.
Why does the media publish such stories of gold at record high prices? Perhaps it is because journalists have not dug deep enough into the history of gold pricing. More likely, it is because such claims make for an easy story, causing things to appear much more attractive. This practice is not limited to stories based on numbers, either.
The fact is that when inflation is taken into account, the price of gold has not yet reached its all-time high. This is great news for individuals who want to buy gold coins or bullion and get in on this profit-maker. Investors should ignore the sensationalism in the media and adjust for inflation when figuring how close the gold price is to its record.