Chart of the Day: Real Gold Prices

Here’s some perspective on the recent gold rally and decline.  Via Goldman Sachs:

  • The 2012 average gold price was only 2.5% lower than the 1980 average of $1,711/ounce in real terms.
  • The long-term real price average is $507/ounce, and the post Bretton Woods (1972 onwards) average is$741/ounce.
  • Despite the latest price drop, prices remain high historically.



Got a comment or question about this post? Feel free to use the Ask Cullen section, leave a comment in the forum or send me a message on Twitter.
Cullen Roche

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services. He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance and Understanding the Modern Monetary System.

More Posts - Website

Follow Me:

  • Alberto

    Please another post on gold, we need it. All these words on an asset that represents about 1% of the global portfolios, may be less. Not a word in this blog about energy costs, nothing about the fat tails represented by the socio-political situation in Egypt or Pakistan. This was an interesting blog, now is a broken record, just empty words about gold, money and nothing else. I’m very disappointed by the evolution of this once promising blog. Not it’s so superficial. Thanks.

  • http://pragcap Michael Schofield

    I’ve said it before, some guys do thier griping on the web because thier wives don’t allow them to do it at home. If you know of a better site, why aren’t you there? Been blocked? Personally, I’ve made a boatload shorting gold lately, partly from info on Pragcap. Keep it comlng, Cullen.

  • jwr

    I wonder why anyone tries to measure the value of gold using “real terms.” It makes zero sense. Gold isn’t bread or a house or an automobile. It’s unique in its history as money and the fact that all that has been mined still exists, very little is added to that stock each year and compared to other commodities that stock is huge. Gold is a constant. Technology or productivity has no effect on a large block of yellow rock. Saying gold should be higher or lower because the CPI has done this or that is like saying Mount Everest’s altitude changes because more or less people (since 1953) summit it each year.

    According to the Z1 there was roughly 5T of credit market debt. Today there is 55T. If credit is money and you value gold at $300 in 1980 which is well below its $800 bubble high why shouldn’t gold be at $3300?

    Goldman should do something informative for a change and tell us why gold has tracked the price of oil since the early ’70’s.


    So following this logic: what is the long term average price of the DOW? I would estimate somewhere around 2000 if we begin averaging from the beginning of the 20th century until today; that is about 12,500 points below where the market stands today. And if we go back to post bretton wood till today I would say the average of the dow is around 6000 points. What does that imply regarding stock prices today?

  • Ilya

    Alberto, To be fair Cullen speaks more carefully on the market in general now that he has Orcam

  • Ilya

    And I agree, before Orcam this blog was more informative and broader

  • http://pragcap Michael Schofield

    IMO the free stuff here is better than what you pay for almost anywhere else. I can’t imagine why anyone would complain.

  • Steve

    What info did you read on Pragcap that led you to short gold?

  • http://pragcap Michael Schofield

    Just part of a broad mix Steve. I would credit Cullen with my macro view, which IMO runs counter to the bull argument, and Peter Brandt heavily influences my technical approach. I read a lot and consider almost anything, keeps me sharp. Really too much to mention here.

  • Jensen


  • Tonka

    If you’re unsatisfied with the data being presented, might I suggest starting a site that provides the data you are interest in?

  • Alberto

    This is Cullen’s blog, he is doing it for free and I ‘ve nothing to complain about it but the blog has now quite a narrow spectrum, it’s essentially a market blog, it can be the best of the best but it’s not particularly interesting anymore just a market blog with the typical large amount of noisy information. This is a very complex and unstable world moving fast in unchartered territories, you cannot even try to understand it with a market view. The market is always short mindend and always victim of behavioural bad habits. Long term survival (at least in financial terms) requires a much broader approach and careful selection of informations. That’s all, I dont’ want to offend Cullen and his work but I will look elsewhere. Macro for me is totally another thing.

  • Tom Brown

    I suggest you directly ask Cullen a question in the forum section. Or start a new topic. Or recommend he address a particular topic. There’s actually a forum section for each of those things. I’m very glad he added that! Also, try JKH and others there will sometimes spend a lot of time answering questions.

    Even if Cullen doesn’t get to an “Ask Cullen” question right away, there’s often someone here who will jump in and try to answer to the best of their knowledge.

    I’m not terribly interested in the “market” articles myself because I’m not confident enough to be anything but a buy and hold index fund type saver. I’m not about to start “shorting gold,” for instance! I’m much more interested in trying to piece together an understanding of the macro mechanics… just for the sake of understanding!

  • Alberto

    it’s all about energy resources and energy prices, the rest is just a consequence. Look there and forget the propaganda, I’ve worked in the sector for many years and I know where the troubles are, why they are so BIG and why there is all this propaganda around… and I’m not shorting anything, I’m old enough to understand the difference between a market and a casinò expecially when the croupier knows so many tricks and will not be punished:

    “…Atty. General Eric Holder (for Pres. Obama) recently stated that he would not criminally pursue the mega-thieves at Bank of America, HSBC and other too-big-to-jail banks because it would just be too “unsettling” for the economy. The Attorney General is afraid to prosecute the most dangerous financial criminals in American history. In essence, the U.S. Government has not just offered the banks the courtesy of underwriting their moral hazard, it’s eliminated the obstacle of law for them as well. At this point, Federal policy reeks of desperation. That’s how fragile the economy is”

  • FX_Trader

    Well, I’ll tell you that I hate all the macro posts. I feel like half the posts here are about the monetary system and the macro economy. I don’t know which blog you read, but Cullen covers more macro than just about any other blog out there. Hell, he wrote the definitive paper on macroeconomics.

  • SS

    Cullen’s a market practitioner. I am pretty sure the only reason he even got into the macroeconomic stuff was because he had to do it to decipher market data. I don’t think there’s any confusion about what Cullen does for a living. He’s not an economist even if he’s better at it than most economists.

  • Mike C

    Regarding this relationship/model….meh. I’m hoping someone will update the negative interest rate model to see where it currently has the price of gold.

  • Tom Brown

    Something here for everyone! I think you’re correct… about 50/50.

  • http://pragcap Michael Schofield

    Alberto, really, I wish you the best of luck in your quest. Scouring the web is a big part of what I do and what you are looking for is most likely to be found here. It’s not just a place for us market guys. I read that comment by Eric Holder somewhere- here maybe? Anyway it sounds like something that could be found here. “The Week” magazine has a lot of that kind of thing, leans left a little, but is a decent read.

  • Tom Brown

    William K. Black, Matt Taibbi, or Yves Smith would probably be good places to follow up on a quote like that, and yes they probably all lean left. On the right, I think Chris Whalen or even David Stockman might agree with that. Sheila Baire might also (I’d say she was more of a centrist… moderate Republican, and the ex head of the FDIC).

  • Cullen Roche


    Almost all of what I do here is macro posts. Maybe you want more GLOBAL macro? Is that what you’re looking for?



  • Alberto

    Scouring the web is not my main goal but is a rich place. I’m a scientist that after short period of practice found better money in the industry and in corporate finance later or. So I’m inclined to view the economy with the eyes of a scientist, essentially as thermodinamical system (and infact it is) so I will copy here just a reminder of one of the most important result of a branch of modern physics. I can’t prethend that you will understand it on a glimpse but believe me it’s much rewarding trying to do it:

    The Law of Maximum Entropy Production (LMEP or MEP) was first recognized by American scientist Rod Swenson in 1988, and articulated by him in its current form (below) in 1989. The principle circumstance that led Swenson to the discovery and specification of the law was the recognition by him and others of the failure of the then popular view of the second law or the entropy principle as a ‘law of disorder’. In contrast to this view where transformations from disorder to order were taken to be ‘ininitely improbable” such transfromations are seen to characterize planetary evolution as a whole and happen regularly in the real world predictably and ordinarily with a “probability of one”. The Law of Maximum Entropy Production thus has deep implications for evolutionary theory, culture theory, macroeconomics, human globalization, and more generally the time-dependent development of the Earth as a ecological planetary system as a whole.

    It is given as follows:


    A system will select the path or assemblage of paths out of available paths that minimizes the potential or maximizes the entropy at the fastest rate given the constraints.

    The only real reason the financial markets fascinates me so much is that you can find confirmations of Swenson’s law almost continuosly.

    You can find much more on Rod Swenson’s web site and on many other resources.

  • http://pragcap Michael Schofield

    “minmizes the potential or maximizes the entropy”. I had to look up entropy, but you can’t be more disorderly than the “greater fool” theory. Are you secretely a trader, Alberto? Have you been shorting gold?

  • Waitingtoretire


    Someone gets it.

    I don’t believe you can have a macro commentary without it being global…doesn’t make sense anymore.

    Those of you who only consider the American stock exchanges with domestic issues are missing the point entirely.

    Gold is a physical substance with specific properties that made it desirable to own in days gone by. For me it falls in to the same category as owning land. Land was also desirable to own in days gone by.

    So is it desirable to own gold today? Is it desirable to own land today?

    Will it be desirable to own gold in 5 years time?

  • Tom Brown

    Here’s another chart comparing barrels of oil to ounces of gold over the years:

    In the article that goes with it, David Glasner does a good job dismantling John Tamny’s previous article on the subject, in which he implied this was a constant:

  • Tom Brown

    “Stock is huge” … All the gold in existence would fit in a cube, 20.7m on a side:

    From Wikipedia:

    “A total of 171,300 tonnes of gold have been mined in human history, according to GFMS as of 2011.[2] This is roughly equivalent to 5.5 billion troy ounces or, in terms of volume, about 8876 m3, or a cube 20.7 m on a side.”

    Granted, that’s a pretty big cube.

  • Waitingtoretire


    I sympathize. How the global financial system works is far more useful to me right now than will the Dow go up or down. From my readings, but with limited background understanding, the global financial system is in a place where it has never been before. As far as I can see, the banks are more powerful in this system that the separate country governments. The most powerful banks being American banks. In terms of Pragmatic Capitalism, this is the system that needs to understood now and not ignored.

  • Tom Brown

    BTW, for anyone who understands MR basics, this old John Tamny article is pretty amusing:

    Tamny is so wrong he’s actually right a couple of times. Although he doesn’t explicitly state it, near as I can figure, his concept of money is that it consists of a fixed supply of paper bills and coins, sometimes augmented by emergency loans (of paper bills and coins) from the Fed. Electronic bank deposits aren’t even on his radar. He concludes that the money multiplier is a myth (agreed, but for totally different reasons!), and that 100% required reserves isn’t a good idea (ditto!).

  • Alberto

    I’m not a negationist ! Cullen Roche did a great job and I’ve learnt a usefull amount of things BUT this is not enough, this helps explaining an important aspect of the world we’re living in, but now it’s becoming somewhat obsessive and going deeper and deeper in understanding the minutiae of the monetary system is no more helpful. I think that, unless the readers are idiots (and they are not, the level here is quite high), they know now enough to avoid basic errors but this also contains a weakness. When you’re confident that you have understood you are also confident that you’re in control, so you’re weaker and not stronger because you are still ignoring a lot of other factors. So you will no more be hit by the train that’s coming in front of you but from a train coming from another direction and there are many. Furthermore is a common human fallacy to feel safer when we think we’re in better position in understanding something. On the contrary we’ve just made a step in the direction of understanding how weak we’re. Cullen and his followers may be 100% correct about the monetary system and be completely blind on others at least as important topics. Being a specialist is dangerous, much better being broadly correct on a vast array of topics than being perfect on just one or two.

  • Cullen Roche

    I’ve spent countless hours developing an ell encompassing view and description of the monetary system and distributed it to the world for free. I am not sure what you else you expect….

  • Miles Protter

    Many of us hugely appreciate what you provide in the public domain. i like how to stick to a central theme but get creative around the edges. I for one would sorely miss it if you stopped. I have an MA in Economics and worked in investment banking for 15 years and I still learn a lot from your site every week.

  • Johnny Evers

    Alberto makes some good points here. I enjoy reading his perspective.
    While the blog does have more posts about macro than markets, the general thrust is market commentary. We learn about the macro so we can understand how the markets will react.
    This is an unfortunate limitation, in that it takes us away from discussing broader economy and how it impacts the mass of people.
    This is a critique of ALL blogs, not just this one. The commentators are in the market and their readership is in the markets. So when we discuss the subject of student loans, for example, we come from the angle of ‘How does this affect the lenders and the investors in student loans,’ and not from the approach of ‘How does student loans affect the young person in debt.’
    Just my two cents. Cullen does a great job and he posts some things that lead me to believe he does understand this. Hopefully that will continue.
    PS: Of course policy makers are entirely in thrall to the markets. And we as investors go along with this, so long as the stock market goes up. Ben can shovel billions to the banks with impunity, so long as our portfolios go up an extra point.

  • Robsabi

    A couple of thoughts. On a chart where the span of time is as condensed as it is on this chart, a sharp rise over the course of a year and a sharp rise over the course of a decade look almost the same, but I think the implications are quite difference. Eyeballing gold charts from the 1970s and the 2000s, it took just over a year for gold to rise 3-fold into its high in 1980. Meanwhile it took 5 years for gold to triple between 2006 and the 2011 high. I believe, when it comes to spotting a true bubble, the rapidity of the final 3-fold or so rise makes a big difference in determining if you have a true blow-off top, or just a very strong rise in what may play out as a much longer trend.

    Also, if you look at the long-term price of gold in inflation-adjusted dollars, the rise in price of the last decade or so off the 2001 lows is much more linear than the sudden spike at the end of the 1970s, and indeed no spike into the 2011 highs is evident.

    To the extent that gold can be supposed to ordinarily behave as a “neutral buoyancy” asset, neither really growing or declining in “real value” but merely maintaining a price in equilibrium with inflation/monetary growth (an ounce of gold being the price of a good suit of clothing throughout the centuries etc.), then any parabolic-appearing rise in the price of gold in the last few years isn’t indicative of a bubble in gold as much as it is a bubble in the supply of money.

  • SS

    I’m going to go out on a limb and make a bet. I’ll bet Cullen ends up in Washington DC at some point in his life. If not as a politician then as an economic adviser. His knowledge is too valuable not to be tapped at some point. I know he doesn’t want to be involved in the politics, but I don’t think he can avoid it forever.