History of Gold - Part 4

8/7/2019 History of Gold - Part 4

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4. Part

Bull Market 1971 1980

Bear Market 1980 2001Bull Market Since 2001

History of Gold

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1. On 1st May 1972 the gold price jumped to over

US$ 50 per ounce (US$265 inflation adjusted)

for the first time after the 1864s Black Friday

2. In the first quarter of 1973 the currency

markets had to be closed for fourteen days

3. Thereafter, Bretton Woods was succeeded by a

system of flexible conversion rates without

any peg to gold and dollar

1. BULL MARKET 1971 1980

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1. On 14th May 1973, the gold price broke

through the threshold of US$ 100 per ounce

(US$ 509 inflation-adjusted)

2. On 14th November 1973, US President Gerald

Ford legalized the possession of gold


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1. In 1976, with the Jamaica agreement the IMF

eliminated the pegging of gold to the US

dollar and accepted managed floating

exchange rates

2. Since then currencies are fiat money, not

redeemable by gold and theoretically themoney supply is infinitely expandable


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1. In the 1970s industrial countries experienced

stagflation with strong inflation, weak

economic development, low productivity and

high unemployment

2. This decade was characterized by high

uncertainty in the financial world, the oil crisis,a strong increase of US national debt and

money supply and a flight of investors into

material assets


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1. In the 1970s the gold price increased 15-fold

2. On 27th December 1979 the gold pricereached a new high of over US$ 500 per

ounce (US$ 1,552 inflation-adjusted)

3. On 21st January 1980 the gold rate at the New

York Commodities Exchange stood at US$873 (US$ 2,346 inflation-adjusted)


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1. In 1980 a 20 year-long gold bear market began

2. To end the economic stagnation, the USTreasury, among other things, limited the

increase of money supply

3. In the short-term this resulted in a more

severe recession and a higher unemploymentrate

2. BEAR MARKET 1980 2000

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1. In the 1990s, the United States experienced an

extended economic upturn (New Economy)

2. In 1994, the New York Commodities

Exchange merged with the New York

Mercantile Exchange (NYMEX)

3. In 1999 the gold rate in London was at an all-time low of US$ 252,80 (US$ 335,95 inflation-

adjusted)


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1. To regulate the gold sales, and thus the gold

price, 15 European nations signed the Central

Bank Gold Agreement (CBGA)

2. This regulated how much gold could be sold

annually. The limitations were 400 per year or

2000 tons within five years (CBGA1 1999 2004)

3. CBGA I was succeeded by CBGA II & III


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1. Between 1949 and 1982 private possession of

gold was prohibited in China

2. The establishment of the Shanghai Gold

Exchange in 2002 increased the gold trade

und thus also demand for gold

3. Within the next five years, China overtook theUnited States and became after India the

second biggest gold buyer


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1. Since 2001 the gold price has been risen

steadily

2. This increase has a clear correlation with the

growth of US national debt and the

weakening of the US dollar relative to other

currencies3. In 2005 the gold price reached for the first

time since 1987 US$ 500.

3. BULL MARKET FROM 2001

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1. Three years later, in 2008, the rate was at more

than US$ 1,000

2. The reasons were the US property crisis and

the collapse of subprime mortgages

3. The financial crisis increased the demand for

physical gold and exchange traded funds


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1. The gold reserves of the biggest gold

exchange traded fund, SPDR Gold Trust,

reached an all-time high in 2010 of 1,320 tons

2. This gold fund controlled more gold than the

Chinese National Bank

3. In the same year announced plans to ramp uptheir gold reserves


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1. On 7. December 2001, the gold price in New

York reached a new record of US$ 1431,60

2. Compared to gold, the US$ experienced an

all-time low

3. Reasons were uncertainties about a sustainable

economic recovery, increasing inflation,possible corporate insolvencies and defaults

of corporate bonds


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1. Other drivers of demand for gold were

growing national debt, low interest rates and

an expansion of money supply

2. Another factor was the decrease of gold

production by 10 percent since 2001 and

strong demand for jewelry and by institutionalinvestors.


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History of Gold - Part 4