Recently, the price of gold once broke through the $2,400 mark per ounce, setting a new record for the highest dollar in history, although it later fell back to around $2,340.

Since this year, gold has proven itself to be more valuable as an investment than stocks, bonds, or real estate. Since January 1, gold has yielded a return of about 14%. In contrast, the S&P 500 index has a return of about 12% for large US stocks, the S&P 600 small cap index has a return of about 2%, and the EAFE index for the international stock market has a return of about 8%.

At the same time, even when interest payments are taken into account, iShares Core US Composite Bond Index Fund AGG fell 1%, and real estate investment trusts lost nearly 5%.

But the current price of gold is really high. The chart below shows what the current price of gold looks like when adjusted for inflation. The actual price adjusted for inflation is almost double the average since gold began to float freely in 1975, close to the peak of the 2011 frenzy period, and surprisingly not far from the level of the 1979-1980 gold bubble.

The price of gold adjusted for inflation

It should be added that for a few days in January 1980, the price of gold skyrocketed in a parabolic manner, once hitting a high of $850 per ounce — roughly equivalent to $3,400 per ounce at today's prices.

These figures don't take into account the fact that the dollar is also soaring; in other developed countries, the actual purchasing power of an ounce of gold is much higher than it was in early 1980. For example, for yen and pound, today's gold price is about 45% higher than its peak at the time.

The risk here is that in the past, when gold reached such a high price, it often fell later. One of the main functions of gold is a “store of value,” which can “withstand inflation over time.” Investors who buy gold at this price are undoubtedly making a big gamble.

Claude Erb, former managing director of TCW Group, and Campbell Harvey, a finance professor at Duke University's Fuqua School of Business, warned in their latest research report: “The actual high price of gold indicates that the actual return on gold will not be attractive in the future.”

Interestingly, US investors missed the recent gold boom. The World Gold Council reports that so far this year, US investors have been net sellers of gold ETFs, with total net sales of 4 billion US dollars.

There are a few obvious reasons. The US economy has been booming, US stocks are also thriving, and Republicans may be optimistic that Trump will return to the White House in November.

The important reason is that, according to a Gallup (Gallup) survey, the ratio of gold enthusiasts among Republicans and Democrats is 4 to 1, and gold is usually an asset that many retail investors buy when they are worried that the country is about to descend into chaos. The gold craze in the past often occurred when conservatives were panicking.

As an investment asset, gold is often criticized by mainstream investment advice. Even as it turns out, for more than 30 years, gold has outperformed 10-year US Treasury bonds, let alone 3-month US Treasury bonds as an investment. Part of the reason gold is criticized is that it seems illogical as an investment: it has no major functional use, and it doesn't generate cash flow. The best way to say it is a currency and is not controlled by any country.

Currently, the main buyers are emerging market central banks, which seem to want a global currency to replace the dollar.

Can gold bring good returns at current levels? Maybe “this time is different.” But remember what the late investment legend John Templeton (John Templeton) once said: The four most dangerous words in investing are “this time is different.”