Last Chance U

Investing in Gold – A Brief History of Gold Prices

Do you the know history of gold in this country? Yes, gold used to be used as the way of valuing the US dollar, called the “gold standard”. This had to be stopped in the 1970s (1973 to be exact) because the value of the dollar was heading south, while the government pumped up the economy as usual. So gold went up in price, and from then on was able to compete with other currencies in the market including foreign currencies abroad. At a price of about $42 in 1973, the price of gold started it’s upward trend, never to look back.

By June of 1973, the price for an ounce of gold had sky-rocketed to $120, and soon other major countries lifted any restrictions on buying gold. By 1974 Japan had lifted restrictions on buying gold as well, and the climb continued. By 1975, gold futures started to be traded on COMEX and the free market traded it as any other commodity – demand drove the price to $180 already by then.

The late 1970s saw gold swing pretty wildly up and down, eventually closing in over $240 before sinking below $200 again.

The year 1979 saw gold climb even higher, due mostly to the poor stock market performance (sound familiar?). Add to that the international tensions with Iran and the oil production uncertainties, gold was headed for over $420 by the fall of 1979 before dropping again. By 1980 though, the crash was inevitable.

The point of this little history lesson is to show how gold has the potential to “blow up” in price, even over longer periods of time. This usually happens in times of inflation, international crisis, and stock market uncertainty, among other things. To sum it up, gold started the 1970’s at around $35 and ended up at over $870 an ounce by December 1979. In extreme contrast, the Dow Jones average went from 809 points in January 1970 to about 839 in December of 1979, a whopping 3.5% rise over the decade! If this doesn’t convince you that gold can be a good investment, nothing will. Of course, like any investment you must be aware of the drivers that are working behind the scenes. However, with the uncertainty in the world right now, and lack of real value in the stock market, I firmly believe that gold is poised again for a steady rise.