Is gold expensive?

Over at Jeff Watson’s excellent blog, he’s been debating whether gold is going up or going down. Rocky asks a slightly different question, “At $1,000 per ounce,  is gold expensive?”

The following graph shows the behavior of gold and the behavior of the US Consumer Price Index going back to 1947. While examining this chart, it’s  important to remember that:

1. It was illegal for US citizens (anywhere in the world) to own gold from 1933 until 1974. 

2. In 1944, the “Bretton Woods” agreement fixed the price of gold at $35 per ounce.

3. In 1971, President Nixon unilaterally took the USA off a gold standard, and from then to the present the value of gold (and the US Dollar) were allowed to float freely.

So, the question remains, is gold expensive at $1000 per ounce?  As those annoying math textbooks like to say, “the answer is left as an exercise for the reader.”

The black line is the CPI Index. The yellow line is the price of gold. Both values were normalized to make the visual relationship easier to see.

Gold Price versus US CPI Index