History of Gold Market

By pjain      Published Oct. 17, 2019, 5:37 p.m. in blog Invest   

Series: Gold - Gold Investing 101

Gold Price History

Gold Price in NY per fine oz

Gold after 2009 Crash, 2015 China Capital Controls and EU/BoJ NIRP

2019 $1330 - $1200-1300 tight range - Super low inflation, QE, global negative interest rates

2012 Stays high peaks at 1700 on 2009 crash and FUD

2009 Volatile and rises to $975 on housing bubble, after a 2000 Bust, 9/11, Mideast wars

1997 drops and stays ~$340 - 1980 Fed 18% interest

1974-1980 Oil inflation, Vietnam Money Printing spree - Gold price spiked to $160 to end at $600 by 1980

The US dominated by its post-WWII military industrial complex, along with the OPEC oil price inflation, another cause was the the money printing spree US saw in the 1970s to pay for both a new domestic policy (LBJ's The Great Society) and the war in Viet Nam. By the end of that decade, Americans were aggressively buying commodities such as farmland, collectibles and artwork — and gold, which reached a then-amazing $875 an ounce. Americans realized that the dollar didn’t go as far, and those who weren’t buying “stuff” demanded higher interest rates to lend or deposit money (T-bills yielding over 13 percent) to compensate for the declining buying power of the dollar!

1971 Nixon pulls the USD-Gold peg, backed petrodollar

  • When France challenged the USD by asking for its USD to be paid back in physical gold, Nixon decided to pull the peg. After this gold started rising rapidly.

The U.S. abandoned the gold standard in 1971 when its currency ceased to be backed by gold.

1934 Gold Reserve Act Price fixed at $35/oz - Government "snatched" private gold

The Gold Reserve Act of 1934 gave the U.S. government title to all the gold coins in circulation and put an end to the minting of any new gold coins. In short, this act began establishing the idea that gold or gold coins were no longer necessary in serving as money.

  • This represented a major jump in price from $20.67/oz before to $35 - but it was a peg and underwrote the USD.
  • This move helped the USD become a solid global reserve currency esp. as US became the dominant superpower after WW II.

Gold has kept its value, eg post WWI sanctions and reparations caused devaluation and hyper-inflation in Germany in the 30’s needing wheelbarrows full of paper currency, trying to exchange it for bread.

1925 after WWI Some European and UK return to Gold Standard - heavily opposed by Keynes

There was a move after World War I by some countries to return to a gold standard (the inter-war gold standard).

“The gold standard is already a barbarous relic”- ch 4 of 1924 “A tract on Monetary Reform” by Keynes

Keynes just had a personal view that the gold standard was too constraining for what he saw as a “modern” economic system. But what Keynes was essentially advocating at that time, in other language, was a debasement of currency. Fast forward nearly 100 years and its obvious now that fiat currencies’ purchasing power has been heavily debased vis-a-vis the gold standard period. - heavily opposed by Keynes

1913 Fed established started issuing Promissory Notes backed by gold

1913, the Federal Reserve was created and started issuing promissory notes (the present day version of our paper money) that could be redeemed in gold on demand.

## 1870-1913 - USA Gold Standard very successfull

“The gold standard appeared to be highly successful from about 1870 to the beginning of World War I in 1914. During the so-called “classical” gold standard period, international trade and capital flows expanded markedly, and central banks experienced relatively few problems ensuring that their currencies retained their legal value. The gold standard was suspended during World War I, however, because of disruptions to trade and international capital flows and because countries needed more financial flexibility to finance their war efforts. -- Ben Bernanke

“Now if we went back on the gold standard and we adhered to the actual structure of the gold standard as it exists let’s say, prior to 1913, we’d be fine. Remember that the period 1870 to 1913 was one of the most aggressive periods economically that we’ve had in the U.S., and that was a golden period of the gold standard.” - Alan Greenspan

1821-1914 Classic European Gold standard

1792 AD U.S. Bimetallic Standard

The U.S. government continued on with this gold tradition by establishing a bimetallic standard in 1792.

The bimetallic standard simply stated that every monetary unit in the U.S. had to be backed by either gold or silver. The coins that were used as money simply represented the gold (or silver) that was presently deposited at the bank.

One U.S. dollar was the equivalent of 24.75 grains of gold.

1780s to 1932 NY Gold flat at $20

  • At times of major wars, gold would spike a bit ~10-15% but then settled down.

Gold's Colonial History - UK, Swiss, Dutch, S.Africa

Gold Ancient History to 1100 AD Peak Muslim Empire

1060 AD UK Pound Sterling backed by BoJ metals in vault

Great Britain developed its own metals-based currency in 1066. The British pound (symbolizing a pound of sterling silver), shillings and pence were all based on the amount of gold (or silver) that it represented.

560 bc State standardized Gold Coins

By 560 B.C. that gold started to act as a currency. At that time, merchants wanted to create a standardized and easily transferable form of money that would simplify trade. The creation of a gold coin stamped with a seal seemed to be the answer, as gold jewelry was already widely accepted and recognized throughout various corners of the earth.

3000 bc Gold used by Egyptians and Ancient India

By 3000 B.C, when the ancient Egyptians started forming jewelry


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