The problem with gold is that it's price fluctuates just like any other commodity. The practical uses of gold accounts for only ~8% of gold mined, while half is for vanity (jewelry, a luxury product) and the rest for speculation and reserves. Similar to fiat, most of the value in gold is in people believing it has value.

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jjk166 6 days ago | parent | next [-]

That's exactly why gold is a useful proxy. The price of gold is pretty much purely a function of how much money speculators have in their pockets. If inflation is high, it means there are more dollars that can go into gold speculation, driving up the nominal cost of gold. If the cost of gold is going down, it means the dollar is strong by comparison.

If you used a proxy that had a significant utility in its own right, like say oil or steel, the price would be a function of how efficiently it can be produced and how strong the economy at large is to demand its consumption.

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wqaatwt 5 days ago | parent [-]

I assume you never tried looking at the price of gold in the 80s and 90s?

i.e. it declined in nominal rates and collapsed by almost 4x if adjusted by CPI

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jjk166 5 days ago | parent [-]

I don't see how that conflicts with my point. The period from Jan 1978 to Jan 1982 was a momentary spike, peaking January 1980, which was nearly 3 times the long term average from 1971 to 2008. If you set that as your baseline, everything looks like a massive decline, but really the average was quite stable from 1982 to 2004. Note that the period of the spike in gold price (1978 to 1982) was a period of extremely high inflation.

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wqaatwt 5 days ago | parent [-]

> but really the average was quite stable from 1982 to 2004

It was falling at a stable pace for 20 years in nominal terms. I don’t see how can someone see anything else looking at the price chart.

And inflation was still 4-5% through the 80s and didn’t fall to 2% until 2000. So it was a horrible asset to hold.

Just buying government bonds in the 80s and 90s was a much better idea.

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jjk166 2 days ago | parent [-]

> It was falling at a stable pace for 20 years in nominal terms.

It was not. Look at the chart: https://www.macrotrends.net/1333/historical-gold-prices-100-...

Between 1984 and 1996, 131 of the 156 months were within $50 of the average nominal price, and the lowest point, December 1984, was only $89 below the average. In particular from 1993 to 1996 the price was never more than $10 off average. If you bought gold in July 1979, which was an all time high at the time, the nominal value of your gold never decreased.

Looking at the inflation adjusted numbers there is much more volatility, but again, the value of gold in Jan 1989 was the same as the value of gold in Jan 1979. If you happened to buy gold during its peak in Jan 1980, you wouldn't see an inflation adjusted profit until October 2024.

Gold is not generally a good asset to hold to make money, but that's not what is under discussion here. The question is can the value of gold be used as a proxy for inflation. Gold going up is like smelling smoke - you know there is a fire. I am not arguing that inhaling large quantities of smoke is the best way to protect yourself during a fire.

	▲	wqaatwt 18 hours ago \| parent [-]
		> The question is can the value of gold be used as a proxy for inflation So it can’t unless you stretch the period out so such an extent that there basically just 1-2 data points left? Or are you claiming that prices and money supply between ~1980 and 2000 increasing by more than 2x? Because otherwise it’s an extremely lagging indicator. More like what’s left after the fire than early smoke.

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rsynnott 6 days ago | parent | prev | next [-]

> Similar to fiat, most of the value in gold is in people believing it has value.

Much moreso, really, because the value of money is kinda sticky; it's really difficult for it to change _quickly_ because a lot of stuff is essentially priced months or years in advance. Even the pretty dramatic inflation in developed world countries in '21-'23 would not be particularly exciting price action for gold, which really can swing quite dramatically in a short period of time.

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anigbrowl 5 days ago | parent | prev [-]

This misses the point that you can establish the purchasing power of gold very easily vs a basket of common groceries or consumer goods.

vanity (jewelry, a luxury product)

Jewelry traditionally functioned as a rough store of value because it's easy to sell quickly (albeit at a steep discount), and it makes a remarkably reliable Veblen good, as a glance at the Oval Office will demonstrate.