It’s time for another round of hyped and misleading “gold hits a record” stories.
Gold closed at $1,500 for the first time yesterday, and The Wall Street Journal puts it on page one under the headline “World Is Bitten by the Gold Bug.”
Here’s the lede:
Gold continued its upward march in a time of global financial tumult, closing above $1,500 an ounce Thursday for the first time as investors seek safe haven in the metal.
In a remarkable performance for any sort of asset, gold has notched a record high every day this week—on days when investors were alternately gloomy and optimistic.
But, as I’ve noted repeatedly, gold is not anywhere near a real record. The only way you can get there is by not taking inflation into account. But the Journal doesn’t report the real record anywhere here. This is the closest it gets to signaling that it’s talking about a fake record (emphasis mine):
On Thursday, gold rose $4.90 an ounce to $1,503.20, another nominal record high and its first settlement above $1,500. Gold is up for five straight weeks, and has gained 5.8% so far this year.
You have to be reading pretty closely to notice that this is a nominal high rather than a real one, especially since the WSJ never mentions the real peak. In real dollars, gold hit its peak in 1980 at more than $2,300 in today’s dollars. In other words, gold would have to rise more than 50 percent in real terms from its current price to actually hit a record.
And blow me down! Gold is up 5.8 percent year to date, the Journal reports. It must be really blowing past other asset classes YTD, huh? No. The Dow is up 8 percent on the year. If you’re going to talk about how much gold is soaring, it would have been better if to report it’s up more than 30 percent over the last year.
This is just not good editing:
And some say gold has much further to rise. GFMS Ltd., a London-based metals consultancy, predicts gold will reach $1,600 an ounce before the end of this year.
That “much further”—to $1,600 by year’s end—would be a 6 percent increase in seven months. That’s hardly the stuff of bull-market legends.
Here’s where we’re told why this matters: Gold is where those invisible bond vigilantes, as Krugman likes to call them, must be laying in wait:
Gold’s rise is a broader reflection of a lack of confidence in governments’ abilities to sort out fiscal problems.
Sure that’s a good part of it. But gold’s rise also reflects the lack of confidence investors have in the financial system and specifically the private-sector banks. I for one bought gold shares a couple of years ago not because of government spending but because of concerns about banks crashing the system. I’m pretty sure I wasn’t alone.
There’s certainly a legitimate story in gold’s rapid rise, as there is in noting the possible bubble aspects of its ascendance, like this kicker:
“All of those people that missed out buying gold…are kind of re-energized and jumping in,” said Robert Higgins, chief executive of First State Depository LLC, a Wilmington, Del.-based storage operator. He has hired three people in the past six weeks and is considering starting a night shift to handle all the inquiries.
So there’s no need to make a misleading claim about it to grab attention. I’ll quote myself again here:
This is part of a broader problem in the press. I’ve written about how the media rarely adjust stock prices for inflation, which has the effect of misleading investors into thinking returns are better than they really are.
Why does this happen? Well, for one thing, a lot of journalists are innumerate and a lot don’t know much about history. But for another, darker reason: it’s an easy story. A reporter and editor will inevitably draw better play for a piece if it’s about a “record” than if it’s about how gold is simply up a few bucks. That incentivizes journalists to sex things up at the expense of the truth. This is hardly a phenomenon limited to numbers-based stories.