David Leonhardt has a column in the New York Times this morning arguing that these claims that "Gold is at a record high" are false. Following Seth Lipsky, I prefer the formulation that the dollar is at a record low to the formulation that gold is at a record high. But beyond that, Mr. Leonhardt writes, "Gold is at a record only if you fail to adjust for inflation." He goes on:
The actual record was set 30 years ago, when the price of gold, in today's dollars, hit $2,387, or 71 percent higher than it closed on Tuesday. This isn't simply a question of math. Anyone who says gold is at a record high (or who said oil was several years ago) is getting the story wrong. Why? Because $10 today is not more valuable than $9 a few decades ago.
Mr. Leonhardt doesn't say what formula he is using to "adjust for inflation." To me, his column doesn't make much sense, because, to me, the price of the nominal, current dollar compared to gold is itself a measure of inflation.
Mr. Leonhardt seems to disagree: "gold is hardly a perfect predictor of inflation. ...From 2000 to 2008, gold nearly tripled in price, while inflation was largely quiet." Yeah, not like we had any kind of rise in prices of housing or oil over that period. (Mr. Leonhardt can complain that, adjusted for inflation, the prices of housing or oil did not go up. Which is like saying that, adjusted for inflation, the price of gold did not go up. It's a tautology wrapped inside a redundancy.) Mr. Leonhardt doesn't give his own definition of inflation, but it seems likely he is relying on the federal government's consumer price index. Perhaps the government should develop its own alternative measure of the Dow Jones Industrial Average, as well, so that Mr. Leonhardt can write columns claiming that that government measure is a more accurate measure of equity values than the market closing prices.