Skeptic Project

“Gold sets record high amid economic fears,” say The Associated Press and Bloomberg BusinessWeek. “Gold surges to record high,” says CNN. Gold closed Monday “at a record $1,402.80 per troy ounce,” reports the front page of today’s Wall Street Journal.

It’s a good story. Unfortunately, it’s not true, at least not in any meaningful sense.

Gold is at a record only if you fail to adjust for inflation. And you should almost always adjust for inflation. Otherwise, you end up with a series of meaningless records — Gold reaches record high! Oil reaches record high! Lettuce reaches record high! — that depend on the fact that a dollar in 2010 does not have the same value as a dollar did in, say, 1980.

More than a month ago, Ryan Chittum of Columbia Journalism Review noticed the epidemic of alleged gold records and urged those of us in the media to stop. The actual record was set 30 years ago, when the price of gold, in today’s dollars, hit $2,318 — or 71 percent higher than it closed on Tuesday.

This isn’t simply a question of math. Anyone who says gold is at a record high (or who said oil was several years ago) is getting the story wrong. Why? Because $10 today is not more valuable than $9 a few decades ago. Claiming otherwise is tantamount to saying that 10 rupees is more valuable than $9 because 10 is a bigger number than 9.

Here’s Mr. Chittum:

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.

The bottom line is simple: These stories are misleading. Don’t mislead your readers.

Full disclosure: Based on Mr. Chittum’s work and my own looking around, The New York Times seems to have avoided this mistake in most of our recent coverage, but I also found a couple of examples in which we made a version of this mistake.

If you’re interested in more on this topic, check out this 2005 column by The Times’s public editor at the time, Daniel Okrent. Also, I wrote about false claims that the stock market had reached a record high in 2007 and about the true cost of gasoline in 2006.

http://economix.blogs.nytimes.com/2010/11/09/the-myth-of-record-high-gold/