Gold prices are nearing the historic nominal high of $850 an ounce, which was set in January 1980. However, due to heavy inflation, $850 in 1980's money is worth more than $2,000 in today's money, suggesting that the precious yellow metal still has a lot of room to grow.

Historic Gold Prices

During the tech boom of the 90s, gold got swept under the carpet. It was seen as an investment for old fogies and paranoid eccentrics...unabomber types that bury money in their backyards instead of keeping it in a bank.

And why not? Everyone was making a killing in Internet and tech stocks. The majority of investors wouldn't even devote a second of thought toward buying gold. It just wasn't worth it.

But now that gold is breaking through historic prices, it seems that you can't go anywhere without hearing about it.

Of course this not is a bad thing...it's the exact opposite in fact. The recent buzz has sparked the interests of your run-of-the-mill investors to buy into gold. And the more buzz there is surrounding the yellow metal, the better it is for those of us that are long gold.

Moreover, unlike 25 years ago it's very easy to buy gold today, giving the average Joe Sixpack all the more reasons to invest in it.

Today you can easily buy gold bars or coins online. And if you don't have the space, or just don't feel comfortable storing it, you can easily buy into a gold ETF's. Heck, there are even two of them...you get a choice.

The buzz and ease of purchase are just two factors that have helped gold move toward historic prices or $850 an ounce.

But you have to remember that $850 in today's money doesn't have the same buying power that it didin the past. Conversely, something that would cost $850 in 1980 would cost you nearly 2.5 times more today.

The main stream financial media has jumped on the bull-wagon and is telling the unwashed masses that 'gold is nearing historic highs'. And undeniably this is the truth..sort of.

For those of you seeking the reality of historic gold prices, let me direct your attention to the Consumer Price Index.

The Consumer Price Index is the measure of the average change in prices over time in a market basket of goods and services. We can use this index to contrast the value of the dollar over time.

Take a look at the U.S. Department of Labor's Inflation Calculator. (This is a link you may want to bookmark for future reference.)

In Janurary 1980, gold topped off at the nominal historic high of $850 an ounce.

When we plug in the numbers we see that $850 in 1980's money has the same buying power as $2061 in today's money.

This means that gold is nowhere near the historic quarter century high you've been hearing about on TV and the radio.

Moreover this means that the real all-time high is well over $2,000 an ounce. And this is one of the main reasons why you're hearing people calling for $2,000 and $3,000 an ounce gold.

Now these types of bull markets typically last about a decade. And being as we just about halfway through there is still plenty of time, and room for that matter, for gold to hit get back on par with its 1980 prices.

Certainly investors who bought gold when it most recently bottomed at $252 per ounce a few years back have made significant profits.

Since that time gold has more than doubled and there have been some terrific gains in both the physical metal and the paper precious metals markets (i.e. mining equities, futures, options, and derivatives)

But here's the fact: $850 yesterday does not equal $850 today. So you might just say that today's $700 gold is quite cheap.

Will gold match its actual value high of over $2000? I can't say. But one thing is certain: gold is going much higher than today's levels.

Good Investing,

Luke Burgess
Managing Editor, Gold World
Investment Manager, Secret Stock Files

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