Here is an excerpt from 'Manias, Panics and Crashes ' by Kindleberger.
"On Jan 1st 1970 the market price of gold was less than $40 an ounce, on Dec 31st 1979 the price was $970.
One of the cliches is that 'gold is a good inflation hedge'; for 400 years the price of gold or its purchasing power in terms of a market basket of commodities has been more or less 'constant' over the long run. In the 1970's, in contrast, the annual percentage increase in the price of gold was many times greater than than the average percentage in the consumer price level.
At some stage in the 1970's the market price of gold was increasing because the market price of gold was increasing.
Investors were extrapolating from the increase in the market price from Monday to Tuesday to project the market price on Friday; they purchased gold on Wednesday in anticipation they could sell at a higher price on Friday.
The 'greater fool' theory may have been at work, some of the buyers of gold may have realised that the increase in price was a bubble and anticipated that they would be able to sell their gold at a profit before the bubble imploded.
At the end of the 1990's the market price of gold was a bit less than $300 an ounce; and once again the cliche that gold is a good inflation hedge seemed valid; the price of gold had increased by a factor of 15 since 1900 and the price of a market basket of US goods had increased by the same amount."
Answer my question from above JB.
Why has the CPI for the last 3 years been a total of about 8% but the POG gone up by 200%?
Answer: the 'greater fool' theory is at work.
The actual CPI in the USA from 2000 to 2010 was 28.3%, so $300 + 28.3% = $385.
So the real value of gold should be $385.
Gold is overvalued by 301%.
Guess what will happen when the 'herd' realise that?