ABSTRACT
The price of gold has risen substantially more than the general price level in the United States and in many other countries. For example Salomon Bros.’ table of compound annual rates of return reveals that for one year, five years and ten years respectively ending 1 June 1980, gold returned 104 per cent, 28.4 per cent and 31.6 per cent respectively while the CPI returned 14.5 per cent, 8.9 per cent and 7.7 per cent respectively. (By comparison the rate of return on bonds was 3.1 per cent, 5.8 per cent and 6.4 per cent respectively.) These results are in contrast to the prediction of traditional theory that the relative price of consumer goods and of real assets like gold should not be permanently affected by the rate of inflation but rather that a change in the rate of inflation ought to be reflected by an equal change in the rate of inflation of each asset price.
