The chart is w/o dividends re-invested. If dividends are included, I think the S&P would be around 4x higher than in 1971 in gold terms.
My 2 cents
- Quite a stupid spread to trade
- Investing in gold is irrational
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Why investing in gold is irrational?
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Maybe the word “irrrational” is a bit harsh. But gold does not generate any income and therefore there is no rational basis to set its price. It purely depends on what someone else decides to pay for it. I know gold has a long history, but it really has similarities to Bitcoin in a way.
Pretty much like everything else then. 
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Not quite. Most assets have a rational pricing logic to it that sets price - among other things - based on earnings, dividends, rental yields et cetera. This does not exist when the asset generates nothing.
I am sure you know this.
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Gold was at U$32 an oz and, in the US it was illegal to possess gold (other than jewellery and collectibles)
how is milk priced then? or coal? or wheat? we don’t go around saying that these things generate no income and so there’s no rational basis to set its price…
Well, no. But they have a “consumption value” and/or can be used to produce another product with a quantifiable value.
And yes, I am aware that you can also use gold to make spoons but I guess we were talking about gold as a financial asset class.
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Isn’t gold used also in production of electronics?
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Yes, gold has industrial uses as well as for jewellry. It’s a funny commodity because of its historical usage as currency.
For commodities, agriculture, precious metals, etc prices seem broadly driven by their production cost. Production by the highest-cost producers gets reduced when the price is too low, something that’s inacceptable in many cases → subsidies for local production and penalties on imports.
So, is investing in an index is a great inflation hedge?
Only if past performance is a guide to future performance
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The difference now is gold wasn’t a consumable resource until it’s use in electronics. That means theoretically, gold will run out if is not efficiently recovered or substituted by a more common material.
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I’d never really thought of it like that, but you’re right. Gold is a scarce non-renewable resource.
A lot of the gold I suspect will be hard to recover because it is a tiny coating e.g. gold plated headphones, gold plated jewellry, ENIG on PCBs.
I know there was a hobby for some to collect old microchips from the 70s which had a relatively high gold content and smelt this at home to recover the god, but this is something of a niche recovery operation with dubious return on time and energy invested.