Having read your two articles on inflation and the suggestion that gold is the appropriate comparison for gauging inflation, i'm not sure, now, that I understand why gold should be the de facto inflation indicator. You pick the dollar and the euro for measurement; why these two currencies and not any two or three other currencies? And how is gold relevant to us in day to day life? Surely measuring the purchasing power of our money by way of a basket of goods that we use daily is the correct way to do it? i guess the CPI therefore comes closest, except that it is probably skewed by an infinite amount of adjustments designed to arrive at a number that is acceptable to politicians. If adjusting the CPI for deflationary items includes for instance reducing the CPI by a factor to reflect the enhanced standard equipment in a modern car versus its twenty year ago counterpart, i would take issue with that and would suggest it a form of manipulation to adjust down the final number. Keeping the CPI to a basket of items that are relevant to the average consumer would be the most straightforward way to do it. Is it not the case then that gold as an inflation indicator is merely a left over relic of ancient empires whose leaders diluted the gold content of their coins according to the dwindling level of their resources? If there's anything i learnt about gold in the last month of this market turbulence, it is thatexcept for speculating activity, gold really only responds to extreme fear, and this only after the dollar loses safe haven status. You advised against over allocation in one of your earlier messages. How true this sounds to me today! best regards.

 
The euro is, in essence, a currency basket representing 15 economies. The euro is also a competing reserve currency.

Gold is a universally accepted alternative to fiat currency.

It's that simple.

 
You can say gold is a universally accepted alternative to fiat currency but that doesn't make it so. I for one have no use for gold as anything but a potential investment vehicle (about on a par with a poker game).

Gold is also a product in jewelry and industrial uses, which, along with it being a gambling game, ruins it as a comparison to currency. Along with the fact that the price of gold just might be affected by the amount of gold found in the ground as we roll along.

Was the rapid run up and fall down of oil prices due to supply and demand or due to
the dreaded "speculation" (otherwise known as the madness of crowds) or some of both?

How much do increases in the price of gold owe to inflation as compared to what it owes to increases in the amount of TV, radio, and print advertisements for buying gold when the price has gone up already.

Yes, we had high inflation in 1979/1980 but it wasn't quite 300 % which is what gold went up by. And we didn't have deflation of 62 % between 1980 and 2001 when gold went from $800 to $300. And there's been quite a bit of inflation between 1980 and today and gold is the same dollar price as in 1980.

What does the value of the euro have to do with anything? I presume when you speak of inflation you mean as measured in the USA in US dollars? Some measure of purchasing power parity might be in order.

You might as well compare the price of long life food bars in Cambodian bhats to the price in US dollars.

That rant concluded, I think gold is set to soar as a long term play. Indians and Asians love the stuff as jewelry and they are finally getting some money to be able to buy more of it. They're growing industries as well.

Might be good in the near term...on a contrarian note, the ads to buy the stuff are way down.

Good luck to all.

 
I don't posit gold as an alternative to fiat currency. Generations before me have. Gold has always been a medium of exchange. Roman dinarii, Ming cash and many other representative currencies have come and gone.

The inflation measure described in the article DOES incorporate purchasing power parity. That's where the euro--the world's second most widely held reserve currency behind the Yankee dollar--comes in. The annualized difference in the gold price expressed in dollars and euro yields the dollar inflation rate.

Comparing the purchasing power of the dollar against another widely accepted currency is a check against the very pricing extremes you rail against.