I've noticed that the ounce of gold lost a third of its value starting at $1700 to $1200 during 2013 and I would like to understand what caused such thing, if possible.

  • Ben, does your edit imply you believe this is on topic? – JTP - Apologise to Monica Jan 3 '17 at 16:42
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    @JoeTaxpayer On topic, yes, because it is about investing. I don't think it is primarily opinion-based either, because I think that an objective, well-defended answer is possible. It's a question about something that happened in the past and not asking for speculation about what will happen in the future. – Ben Miller - Remember Monica Jan 3 '17 at 16:55
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    @BenMiller - I am gray on this one, but would bet a beer that Nathan will vote off topic. – JTP - Apologise to Monica Jan 3 '17 at 17:00
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    First understand why it went from around $800 in '09 to $1800 in '12. – jamesqf Jan 3 '17 at 17:58
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    Economy goes down, people get scared and buy gold, the price of gold goes up. Economy gets good, people sell gold, the price of gold comes down. – Loren Pechtel Jan 3 '17 at 19:33

Gold is useful, but the total industrial demand for it isn't that big. The primary use is as bullion or high caret jewelry as a store of value. People tend to purchase it when they are uncertain about the future or are worried about currency debasement. When anxiety and uncertainty drop, not as much is purchased. It doesn't earn any interest and there are costs of storage, so there is a certain amount of disincentive to hold too much of it.

I don't look on the price changes as "it lost value", but more as "it got bid up over the equilibrium price and has now returned towards the mean".

From the previous peak in 1980 to the price bottom in 2001, gold had 85% less purchasing power as measured in McDonalds hamburgers. (A standard commodity with lots of price data.) That's a lot of purchasing power to lose.

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  • So you are basically saying it got overvalued? – JTP - Apologise to Monica Jan 3 '17 at 20:54
  • If you pick some fairly stable commodity (I used the basic McD's hamburger which hasn't changed in decades) and use it as a value for an oz of gold, you notice that the value oscillates around something that might be termed the fair value. The price of gold in dollars in 1980 and 2011 is clearly higher than that and the price in 2001 is clearly lower. So yes, it got over priced in 2011 and may be closer to fair value now. – zeta-band Jan 3 '17 at 21:38
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    I should do the whole graph in McD's burgers, but it ends up being a fair amount of work. – zeta-band Jan 3 '17 at 21:39

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