In 1717, the Master of the Royal Mint in the United Kingdom, set the value of gold at 3 Pounds, 17 Shillings and 10 Pennies per troy ounce. A lot has changed since then — not least the currency used in the home country of the Royal Mint — but for the two hundred years or so that followed this announcement, very little changed as far as gold was concerned. There were small fluctuations, including the decades of turmoil and uncertainty brought about by the Napoleonic wars, but from this date until the start of World War 1, very little changed.
The Master of the Mint at the time was actually Sir Isaac Newton, and although the history books were less concerned about his work for the gold markets than they were with his work in the sciences, this sort of prolonged stability has not been seen since.
The Great Wars
War changes people, it changes countries, cultures and laws, and it also changes the gold markets. The average price of gold had barely moved up or down by more than a dollar in 200 hundred years, but in the years after the world’s first global conflict, it climbed from $18 to over $20 an ounce. There was a slump in the years that followed The Great Depression, but by the time of the Second World War, gold was valued at just less than $34 an ounce. This means that despite very little movement for 200 years, it nearly doubled in the short time between the start of the First World War and the start of the Second.
The gold price didn’t fluctuate much during this second major conflict, and in fact very little happened throughout the 1950s and 1960s, despite the massive changes that were going on all over the world, as we left the shadows of global conflict behind and entered times of peace and prosperity.
The End of Gold Standard
The 1970s saw some big movements in the price of gold, and this was precipitated by President Nixon, who brought an end to the Gold Standard and introduced a new way of trading this valuable metal. In 1972 gold hit its highest yet at close to $60 an ounce, just two years later it had tripled and in 1980 it hit over $800 an ounce. These were the first true boom years, a time when everyone wanted to get involved with gold, but a time where uncertainty was king. Gold had never been this high before and such huge rises were unprecedented, so no one really knew where this would lead. Would gold continue to rise, or would the markets suffer a blip, with the value of gold plummeting?
The First Fall
Gold peaked at $850 an ounce in the early 80s. If we adjust for inflation, then that’s about $2,200 at today’s prices, which is more than the current value of gold. The end of the Gold Standard played a huge role in this, as did the fact that inflation was at its highest in many countries during this time. There were also many International conflicts and a great sense of uncertainty.
It was inevitable that this would come to a head, and it did just that. Gold shot back down to $400 the following year and it remained at $300 to $400 for the next fifteen years or so. It hit one of its low points of the last few decades in 1999, and it wasn’t until 2006 that it eventually crawled above $500 an ounce.
Now and the Future
Gold has seen a rival in the last few years and is more than double the price it was 10 years ago. Gold is higher than it has ever been, but only if we ignore inflation. There are still many investors who believe that another peak will come, that another 1980 could be just around the corner. With conflict in Crimea, Israel, Iraq and many other countries, not to mention the economic issues that global powerhouses like Russia are facing, they may just be right.
Gold has been climbing solidly for close to 15 years now, and we for one think that will continue.