Isn’t it just inflation. As time passes there is more fiat in circulation, which means fiat is worth less, which means you need more fiat to buy the same amount of gold.
Isn’t it just inflation. As time passes there is more fiat in circulation, which means fiat is worth less, which means you need more fiat to buy the same amount of gold.
> Isn’t it just inflation. As time passes there is more fiat in circulation, which means fiat is worth less, which means you need more fiat to buy the same amount of gold.
Gold was absolutely flat between 2012 and 2022:
* https://www.apmex.com/gold-price
but USD money supply was increasing during that decade:
* https://fred.stlouisfed.org/series/M2SL
See also flatness of gold prices from 1982 to 2002 with an increasing money supply. An older article:
> Sure, there were periods when gold was rising in tandem with the money supply, e.g. in the 1970s and 2000s. However, the yellow metal was in a bear market during the 1980s, 1990s and since 2011, despite the rising money supply (as indicated by the orange rectangles). The price of gold has fallen since 2011 by more than one-third, while the monetary base has increased by half and the M2 supply has risen by more than 25 percent.
* https://www.goldpriceforecast.com/explanations/gold-money-su...
There is little correlation between the two.
I'm surprised that no one is mentioning the direct effect of petrodollar (or lack thereof).
The gold price drastic increase and USD worst decline is to be be expected, and it's mainly due to the end of petrodollar agreement discussed on HN last year [1]. Somehow the Nasdaq news link is dead now but the Firstpost news is a similar one [2]. The top comment is a golden example of denial (pardon the pun), "This is itself inconsequential" [3]. This can be another Dropbox comment moment of HN. The comment also predicted that "Things will keep running as today probably for the next 20 years", and here we are in just after a year.
The negative effect to USD due to the end of petrodollar is imminent and the writing is on the wall for the gold price to increase sharply when there is no more petrodollar.
[1] U.S.-Saudi petrodollar pact ends after 50 years (325 comments):
https://news.ycombinator.com/item?id=40673567
[2] What was the US-Saudi petrodollar deal that lapsed after 50 years?
https://www.firstpost.com/explainers/what-was-the-us-saudi-p...
[3] U.S.-Saudi petrodollar pact ends after 50 years (top comment):
https://news.ycombinator.com/item?id=40674911
I think you may have misread "fiat" as "flat" :)
Hmm, even the kerning on my browser makes them look fairly similar.
F-I-A-T versus F-L-A-T
Hope this helps!
> I think you may have misread "fiat" [with-i] as "flat" [with-l] :)
I did not. The data I linked to shows that there is no historical, long-term correlation between M2 and gold prices.
That’s certainly part of it (and the argument most gold bugs make as to why we should all be buying gold), but gold has gone up 133% in the last 3 years which is wayyyyy beyond inflation tracking.
If Gold kept pace with inflation (roughly $35 an ounce in 1970 dollars) it would be ~$279.98 an ounce in 2025 dollars.
So inflation has almost nothing to do with the current price of gold and the grandparent post’s speculation about the futures market running hot is far more likely. The price of gold isn’t attached to the dollar and hasn’t been for over 50 years.
The retail price index probably understates the effect of inflation. The amount of gold to buy a house say has remained fairly constant over time.
I would like to see that chart because houses have also spiked significantly in price especially since 2008. That maintaining a consistent ratio would at least eliminate the dollar from the equation showing value not just dollars.
A quick sanity check of my own house would show that it would cost something like 75 ounces of gold. It was built in the 70’s and originally sold for 45,000, or well over 250 ounces of gold in gold prices from around then. Doesn’t seem right…
There's a chart here for the UK https://auronum.co.uk/gold-vs-bricks-how-many-ounces-you-nee...
It fluctuates a fair bit but starts and ends at ~150oz/house
And the US https://www.longtermtrends.net/real-estate-gold-ratio/
The other way to think about it is that the price of many other things may have gotten cheaper (in terms of labor/capital) at the same time as fiat inflation.
But how can you untangle an objective production price from the fiat / economy it's produced out of?
If that were the case, you'd expect scarce but still produced assets (e.g. housing) to have both increased in price (due to fiat inflation) and decreased in price (due to production technology efficiencies).
Which one dominates to what degree likely depends on the asset.
Inflation has been masked and understated for decades. Some of the inflation was concealed by getting rid of domestic production in favor of cheap imports. These chickens are coming home to roost.
Gold can be an asset. But the way it functions as a financial instrument is more like a short against fiat currency. That is, when inflation starts (or at least when it comes to peoples' attention), gold will move by more than the amount of inflation. When peoples' awareness of inflation goes down, gold goes down, even if inflation is still greater than zero.
Note well: This is my impression. I have not tested this hypothesis against historical data.
The fed doesn't even publish M3 anymore (which is what tells us how much fiat there is in circulation). So we really don't know. We do know that as of 2020 America no longer uses fractional reserve banking. The collateral requirements for banks are now zero. There's more kinds of inflation than just M3 growth. There's also loss of faith in the dollar. Loss of creditworthiness of the USG. But most importantly, the loss of people willing and able to work. Gold measures all of them. The value proposition of treasuries is they pay yields which means you can extract surplus value from American labor. However with such a sickly aged population, it's more of a risk that Americans will exploit the dollar to fund their own retirements instead. Goldman Sachs said a month ago when gold was $3500 that if just 1% of treasury holders decide that a rock which doesn't do anything is a safer better investment than the American people, then gold is going to go to $5000.
It's also the weakening of the dollar. If the dollar is 10% weaker, an international gold seller now needs 10% more dollars to be willing to give you their gold -- which means the "value" in dollar terms is 10% higher.
> As time passes there is more fiat in circulation, which means fiat is worth less
This isn’t always true. For one thing, the amount of fiat in ‘circulation’ isn’t just a matter of “count up all the bills printed”, but is affected by how much leverage exists in the world and many other things.
Second, even how much a fiat dollar is worth is also a factor of how much productivity there is in the world. To understand what I mean, let’s imagine a super simple economy with only fiat dollars and wheat. Every dollar is only used to buy wheat.
Say there is $1000 in bills and 1000 pounds of wheat. Each dollar is worth 1 pound of wheat. Then, we print an extra $1000 in bills; that would be inflation, and now you can only buy 1/2 pound of wheat for a dollar. That is what people imagine when we talk about printing more money causes inflation.
But what if new technology gains means we are able to produce 4000 pounds of wheat for the same amount of work; now, each $1 can buy 2 pounds of wheat. Even though we printed more money, the economy grew even faster than we printed extra money, so we didn’t get inflation and instead prices went down.
Inflation is always (generally) about the ratio between currency production and economic output growth. You can’t just look at one side of the equation.
There are also more economically active people in the world sharing (I assume) the same amount of gold.
It seems that way to me, plus Trump's erratic tariffs behavior specifically targeting swiss imports and gold specifically was in the spotlight - the US seems likely in a gold bubble partly from that chaos.
isn't this inflation?
Of course it is inflation. Has all stocks in the world and all commodities in the world and all real estate in the world increased in price? Or is it the currency that has reduced in price.
Massive inflation has reduced the value of all currencies, giving the illusion that everything has gone up in price. Well everything except for salaries that is.