Mar 9th 2011, 10:56 by Buttonwood
MANY thanks to the commenters on yesterday's post who suggested that the cost of higher education might be a good store of value against which to measure the progress of gold. As the passport to career success (although not for entrepreneurs) in the developed world, higher education does seem a pretty good indicator.
Commonfund publishes an index of US higher education costs going all the way back to 1961 while the average annual gold price can be found here. To aid calculation, the two figures were roughly similar in 1971 when the US went off the gold standard; the higher education index was at 42.1 while gold was $40.62 an ounce. Since then, the higher education index has risen sevenfold while gold has risen almost 36-fold. On that basis, gold looks very overvalued.
That might be an unfair basis of comparison since the gold price was artificially held down by central banks before 1971. If we start from the 1980 bullion peak of $615 an ounce (the average for the year) gold has risen 133% while education costs have risen 264%.
Perhaps it is is fairer to use a multi-year average. If we use the mean for 1980-2000, then gold has risen 279% while higher education is up 102%. On that basis, gold looks overvalued or, to put it another way, has anticipated a lot of inflation that has yet to occur.
About Buttonwood's notebook
In this blog, our Buttonwood columnist grapples with the ever-changing financial markets and the motley crew who earn their living by attempting to master them.
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It is proven to be a safe investment to own a house. It is a fact that the value of a house in the market never diminishes.
Oooops ! That's from last decade.
And your house will "always be worth something." Feh.
Gold is overvalued because Inflation has been the fear-puppet of the noisy rightwing talkradio foofs.
Inflation has been their fear-puppet because they're all sponsored by gold investment firms.
Gleefully circular, wouldn't you think? Capitalism at its finest!
Spend some time searching the Internet and you'll also find plenty of small investors in precious metals swear that gold is the best investment in deflationary environments as well. Mostly the arguments are of the low-interest and doomsday type.
But hey, if all you're buying is gas, food, and gold, then the world looks very inflationary.
Hey, the comment I was mocking is gone !
"It is proven to be a safe investment to own gold. It is a fact that the value of gold in the market never diminishes."
I'll bet he was a mortgage broker until that broke.