Saturday 17 July 2010

Gold Priced in British Pounds (GBP) – July 2010 Update

In real (inflation adjusted) terms gold has stopped, at least temporarily, its steep climb by falling in value by 6.1% month on month (£837.28 to £786.14). Year on year though gold is still up by 30.8%.

Gold when priced in British Pounds (GBP) is however still yet to reach new real highs. Since 1979 we have seen two month average higher real (inflation adjusted) peaks. The first was £867.22 in 1983 and the second was £1,076.06 back in 1980. These peaks are still 9.4% and 26.9% higher respectively than today’s price.

On the other hand the trend line of the chart suggest gold today at only £278.48 and the historical average real gold price from 1979 is £447.50. So by both these measures gold currently looks over priced in GBP terms.

My second chart today shows the price of gold in GBP divided by the seasonally adjusted average earnings index for the whole UK economy (LNMQ) since 1990. This ratio shows that gold was ‘cheap’ between 1998 and 2005 (remember Gordon Brown sold 400 tons of the UK’s gold reserves between 1999 and 2002 in a series of auctions). In earnings terms gold is as of April 2010 (the latest available data for LNMQ) 3.2 times more expensive than the low of that period and continuing to rise.

As always do your own research.

Assumptions include:
- Last gold price actual taken midsession on the 15 July 2010
- All other prices are month averages.
- July 2010 inflation is extrapolated from the retail prices index (RPI).

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