The financial markets are witnessing a striking trend: the value of the Dow Jones Industrial Average has declined by 37 percent in terms of gold over the past 96 years. Right now the Dow would be a little over 46,300 points, gold would be about $3,800 per ounce. This drop underlines how austerity politics and inflation have distorted the stock market’s achievements over the past century.
In 1929, the Dow hit its highest point—381.17. In those days, gold was selling for about $20 an ounce. The ironic juxtaposition of these numbers to those of this day and age is just how much has changed in terms of value. The appreciation of the stock market over the decades has largely been driven by inflationary pressures, which have eroded purchasing power and changed the landscape of financial investments.
A behavioral analysis of stock market behavior would point to the fact that the S&P 500 index increased by over 130 percent during the 2010-2019 decade. When we look at a longer term picture and stack that up against gold, the story is quite different. Today’s price of gold is about $3,800 per ounce. This very high value bolsters its reputation as a safe haven asset. This is why it’s called “real money,” a term of art that stands in stark contrast to the ephemeral and easily manipulated world of stock prices.
The end of the Dow measured in terms of gold illustrates the effects of inflation on real investments. It’s a pointed reminder that inflation has long influenced investors’ choices. By virtue, inflation has escalated the values of these assets in nominal terms over the years. It has reduced their real value in terms of actual currency, like gold. When we consider those numbers, the historical context for this moment ratchets up significantly. Stock prices might have increased, but their value is not surpassing gold.
Market analysts predict that this new trend could cause investors to rethink their strategies and reallocate their assets. With gold’s reputation for stability and real value, it is gaining renewed interest among those seeking a hedge against inflation. The Dow keeps falling further behind when looked at in gold. This trend leads to another troubling question of whether stock market gains can be sustainable in a long-term inflationary environment.