banking panics and severe depressions that plagued the gold standard
and still bring inflation down to very moderate levels, as we have seen
in the last two decades.
It is not surprising that the price of gold has closely followed the
trend of overall inflation over the past two centuries. Its price soared to
$850 per ounce in January 1980, following the rapid inflation of the pre-
ceding decade. When inflation was brought under control, its price fell.
One dollar of gold bullion purchased in 1802 was worth $32.84 at the
end of 2006. In the long run, gold offers investors protection against in-
flation, but little else. Whatever hedging property precious metals pos-
sess, holding these assets will exert a considerable drag on the return of
a long-term investor’s portfolio.^13
10 PART 1 The Verdict of History
FIGURE 1–3
U.S. and U.K. Price Indexes, 1800 through December 2006 (1800 = $1)