Flashback: Gold In The 1970’s

It was the 15th of August 1971, and President Richard Nixon put an end to the ‘golden window’ for converting 35 US dollars into an ounce of gold, what ensued was a bull market that saw gold prices soaring like never before. The Bull Run lasted for a decade right up to the 21st of January 1980 slightly after lunch time (about 3.PM London Time) when the London Gold Fix (PM) established the price of gold at 850 dollars.

Flashback: Gold In The 1970's

Around this time the Feds were imposing interest rates that were as high as 20 % and in comparison to current times the gold price is somewhat at a point of where it was in 1975 when gold had gone up by close to 25 times from where it started at 35 dollars an ounce. The current bull run however started at 250 dollars and if the same ratios were applied at 25 times from the beginning of is run, gold should have a value of 6,250 dollars, although this does show of a possibility that might play out, however what must be considered is the fact that the start of that bull run was based on an artificial price that was determined by the government and not through free market mechanics.

Flashback: Gold In The 1970's

Thus, based on the fact that the prices of gold were debased in 1970 which allowed gold to increase to 850 dollars from 35 dollars, the same scenario is highly ‘unlikely’ to happen in this Bull Run. Below are the charts comparing the Bull Run that began in 1970s to the gold rally that took off in 1999 in terms of percentage and tracing back the estimates, the current rally is at the same rally point that it was in 1975.

However, it must be taken into account that due to the fact that gold prices is based on the USD, the ‘cost of actually buying and selling gold differs. For example those who decide to get cash for gold today would find it lucrative to sell at current prices, whereas those who are buying may find it above reasonable prices due to the fact that the Australian dollar had depreciated against the USD.

Some of the gold buyers have come to terms with the fact that they have to comply with gold sellers and afford cash for gold in Melbourne while prices are still acceptable despite the weakened Australian currency, with the hopes that the current economical imbalances in Europe would cause gold prices to rally in the long run.

Another factor that must be equated into buying and selling gold, regardless of what currency you use, is the value of gold in comparison to the nominal value of currency, currencies have superficial values that tend to fluctuate without warning, the current scenario has made it cheaper for those with US currency reserves to buy gold whilst making it expensive for those who have other currencies like the Australian or Singapore dollar to buy gold.

Situations such as these must be approached with caution as although it may seem profitable to sell gold at current prices, it may also be unwise as gold prices are definitely poised to go higher in the near future and as such any person with a substantial amount of physical gold in hand would be at a vantage position to make a lot of money later than they do currently.

Current gold prices have already been seen as too low and too volatile for comfort and the current fluctuating prices is not due to the fact that gold has lost its appeal, but it is rather due to the bigger market players setting the stage for a buyout.