Tag Archives: Gold

A Brief History of Gold Price ‘Spikes’

By Douglas Trinder, Senior Numismatist & Precious Metals Analyst, Jack Hunt Gold & Silver

US CurrencySince President Nixon’s abandonment of the Bretton Woods System in August of 1971 the price of gold in US Dollars has been allowed to fluctuate from its previously set price of $35.00 per troy ounce. Since 1971 there have been both extended periods of gold price stability as well as several instances of rapid price increases or ‘spikes’. This article will examine three of the more noteworthy gold price spikes.

The most highly publicized gold rally occurred in 1979-80. Often referred to as the ‘boom’, gold rose from $230.00 an ounce in January of 1979 to a then staggering level of $855.00 an ounce in January of 1980. With silver reaching its still all-time high of $48.00 an ounce at the same time, media coverage was extensive. Fly-by-night gold and silver buyers suddenly appeared in what seemed to be every vacant storefront. The amount of gold jewelry, sterling and coins sold by the public was at levels never to be seen again. However, the ‘boom’ was short lived and effectively ended in the Summer of 1980. By June of 1982 gold was below $300.00 an ounce again. The gold price spike of 1979-80 is thought by many to be a classic reaction to high interest rate, high inflation rate during the latter stages of the Jimmy Carter presidential tenure. When it became apparent that Ronald Reagan and his conservative fiscal policies would assume the presidency in 1981, inflation fears eased resulting in gold’s price regression.

Gold prices 1971.08.15-2020.09.14

From 1982 to 2006 the price of gold was valued in a rather narrow range of $255.00 to $530.00 an ounce. In 2007 gold began a noteworthy ascent in value hitting $1000.00 an ounce in March of 2008 and breaking the $1000.00 barrier for good in October 2009. In July of 2010, the gold price averaged $1050.00 an ounce, one year later it hit $1600.00 and peaked two months later at $1900.00. This price spike garnered some media attention and many of the fly-by-night ‘We Buy Gold’ businesses, closed since the mid ’80’s, popped up again. This gold price spike, unlike 1980, featured far more bullion transactions and less selling of jewelry and the like. Many of those who had accumulated bullion over the prior 25 years sold some or all of their holdings at a handsome profit. Others, thinking precious metals were heading to even more astronomical heights, bought in at these then relatively high levels. Unfortunately, by 2013 gold had retreated to below $1200.00 and remained rangebound till 2020. Most observers feel gold’s regression from its 2011 highs was likely due to three reasons: 1) Profit taking 2) Lessening of demand due to the then unheard of $1900.00 price level and 3) Low Fed Fund (Interest) rates from 2010 to 2016.

gold coinsThe third and final gold price spike to be discussed is still ongoing. In August of 2019 gold averaged $1400.00 an ounce. Exactly one year later it hit an all-time high of $2065.00 an ounce. As I write this gold seems ‘comfortable’ trading in the $1900.00 range. Unlike the other price spikes of 1980 and 2011, the meteoric rise of gold this year has been largely ignored by the media. Why? Theories are numerous. Is it due to the volume of ‘more important’ legitimate or imagined news we’ve been bombarded with this year? Is the Federal Reserve or Wall Street suppressing information? We may never know.

While the amounts of scrap gold and coin collections sold this year have been minimal, the volume of bullion related transactions has been extraordinary. This year has seen such intense demand for tangible precious metals that shortages in gold and silver bullion have been commonplace.

Where gold goes from here is purely speculative. Interest rates are effectively as low as they can go but the Fed could create more money out of thin air in response to the current pandemic. If that occurs the dollar should theoretically weaken versus foreign currencies, a scenario usually bullish for gold. A Democratic victory in November would likely give at least a temporary boost to the gold price as well. On the other hand, if the pandemic and its related issues ease, or a successful COVID-19 vaccine becomes available to the masses, a regression in the gold price back to pre-COVID levels seems likely.

Regardless if you think gold is rocketing towards $3000.00 an ounce or regressing back to $1500.00, I’d like to conclude by suggesting you talk to the professionals at Jack Hunt Gold and Silver for all of precious metal related transactions.

What is “real” money?

Throughout recorded history, true money has been defined as a tangible item accepted for exchange and considered to have value.

Diverse items ranging from tulip bulbs to seashells to weaponry have been considered money at some point in history. However, none of those items have stood the test of time.

Neither have government issued fiat currencies. Throughout history all fiat currencies have failed or likely will fail again.

Currencies are not “real” money

If you ask the average guy on the street to define “money,” 99 out of 100 will likely answer “paper money,” the U.S. Dollar or a similar response. Technically, that?s an incorrect answer. Paper money and base metal coinage are just government issued currencies, a form of debt.

On the other hand, gold, and to a lesser extent silver, fit the historical definition of money and have for thousands of years.

So why have gold and silver survived the test of time as a true form of money? And why have gold and silver been universally accepted as money throughout recorded time?

gold bullion vs gold coins

Unlike government-issued currencies, gold and silver have been considered “real money” throughout history. [Photo credit: BullionVault Bullion bar in sea of coin via photopin (license)]

Why gold & silver are “real” money

Here are a few reasons why gold and silver are well suited to be considered money:

1. Gold and silver are LIQUID, meaning they are easily exchanged, traded, bartered with or sold for non-monetary government issued currencies.

2. Gold and silver are CONSISTENT. That refers to the fact that gold and silver are easily recognized, and their appearance and composition have never changed.

3. Gold and silver are DIVISIBLE. Smaller or larger units of precious metals are proportional in value. Most other tangible items of value are not.

4. Gold and silver are CONVENIENT, meaning even small units hold noteworthy value and are easy to carry and transport.

5. Gold and silver are DURABLE. That means, as with all precious metals, they are not biodegradable, nor can they evaporate and disappear without a trace. That is not the case with many forms of “so-called” money.

6. And finally, and maybe most importantly, gold and silver cannot be created “on a whim.” Both are FINITE. Whereas there?s almost an infinite amount of paper on this planet, there?s a very finite amount of accessible precious metals.

If you have any questions about true money, which is by historical definition physical gold and silver, please contact the non-commissioned professionals at Jack Hunt Gold and Silver at your convenience.

Can the World Run Out of Mineable Gold?

Hundreds of years ago, early economists were puzzled by a quirk in pricing: why do some non-essential goods cost so much while truly essential goods cost so little? As an example, why are water and grain so cheap when they are so vital for human survival? Why are gold and diamonds so expensive when neither is a necessity?

Scarcity & Value

The answer is quite simple. All economic based commodities are scarce to some degree. All things being equal, more scarcity = more value. There is a lot of water in the world, but not much gold. Both have significant value but for different reasons. Simply stated, it?s easier for most people to access fresh water than to mine an ounce of gold.

Why Gold is Valuable

Gold is valuable for many reasons, but its relative rarity is one of the most important. In fact, gold is so scarce we might be running out. The notion that the world may be running out of mineable gold recently appeared in a Wall Street Journal article discussing the failed Barrick-Newmont gold mining merger. The author begins the article by stating: ?The big dilemma for gold miners; there ain?t much gold left.? He?s correct. The lack of readily mineable gold is making life tough on mining companies worldwide. My only issue with the aforementioned article is that the author doesn?t seem to note the significance of running out of the world?s most famous precious metal.

Gold is Increasingly Harder to Find

The article goes on to say that, at current mining levels, we are only 20 years away from completely exhausting all of the discovered gold mines in the world. All of them. That isn?t to say that more gold can?t be found; it just isn?t common to find new pockets of the yellow metal. This has become more and more evident since the boom in global demand for gold over the last 25 years.

decrease in gold mining graph

As the global demand for gold has increased, gold discoveries have decreased dramatically over the past decade, putting us at risk of running out of mineable gold within the next 20 years. [Image: GoldCore]

Numerous mining publications track the discovery of new precious metal reserves, including gold. Most industry sources agree that new gold deposits can be categorized as ?major? or ?significant? by containing an estimated 2 million ounces of mineable fine .9999 gold. Industry sources agree that 22 ?major? deposits were discovered in 1995, 6 in 2010, 1 in 2011 and none from 2012 to 2015. The decline is unmistakable.

The Future of Gold Mining

While there are estimates that there could be substantial quantities of gold beneath the Arctic Circles, the cost would be extremely prohibitive with gold at or near current levels. There also may be large pockets of molten gold near the earth?s core. However, it?s a safe bet we won?t be mining that anytime soon. Data suggests that gold production seems to have peaked around the year 2000 and has averaged an annual decline of approximately one million ounces since. Many speculate the next great gold deposit will likely to come from mining an asteroid! A topic for a future blog.

Gold’s Long-Term Outlook

Gold has always been a good long-term store of value, but in the long run it may prove to be a better one. The demand for gold was at an all-time high from 2008-2013 and the current trend of decreasing supply could increase its value in the medium to long term.

Remember, gold?s relative scarcity contributes to its value. It?s Economics 101: the more demand for a commodity, the more valuable it will be; the less supply of a commodity, the more valuable it will be. Gold could have both of those factors going for it in the medium to long term.

Jack Kemp and the Gold-Based Dollar

Many of you are very familiar with the late Jack Kemp (1935-2009) whether it?s from his several terms as a local Congressman or from his tenure as quarterback for the Buffalo Bills.

However, many of you precious metal followers, more specifically you “gold bugs,” are not aware of Mr. Kemp?s keen interest in the yellow metal.

Kemp’s Gold Standard

Mr. Kemp was sometimes referred to as “Mr. Gold Standard” for his ideas on the need to anchor the U.S. Dollar to both an enduring and recognized symbol of value.

Jack Kemp gold standard

Former politician and Buffalo Bills quarterback Jack Kemp (1935-2009) was known as “Mr. Gold Standard” for championing the gold-based U.S. dollar. By Austin Bonner (flickr user a.bonner) [CC BY-SA 2.0], via Wikimedia Commons

Despite criticism from the left, he knew the notion was sound at both the domestic and international level, an idea consistent with the political philosophy of Thomas Jefferson.

Mr. Kemp hoped that by linking the U.S. Dollar to gold, the U.S. could establish a new position of world leadership. He felt a return to the gold standard would lay the groundwork for a restructured international financial community consistent with our values of economic freedom and personal responsibility.

Nations willing to accept a gold based currency would be effectively committing to free trade and economic opportunity based on a level playing field. No longer would fluctuations in fiat currencies undermine competition and free markets worldwide.

Congress’s Role in Regulating Currency

Congress is empowered through the Constitution to ?regulate? the value of money. Notably, that power is explicitly granted in terms of authorizing the right to ?coin? money, not print it.

The duty of Congress was to define the U.S. Dollar in terms of a specific weight of gold or silver. Thomas Jefferson proceeded to do so, writing in 1784: ?If we determine that a Dollar shall be our monetary unit, we must then say with precision what a Dollar is.?

By 1792, the value of the Dollar was fixed through the Coinage Act at 371.25 grains of pure silver or 24.75 grains of pure gold.

Furthermore, Mr. Jefferson argued that it would be a violation of the Tenth Amendment to empower the government to issue ?bills of credit? to be accepted as legal tender.

Why The Gold Standard Matters to America

The need to provide a stable monetary foundation for domestic growth as well as forging an international monetary foundation devoted to free markets was the gold standard rationale often invoked by Mr. Kemp.

?Gold convertibility may not be fashionable,? he noted in remarks before the Atlanta Federal reserve in 1982, ?but I am convinced that it is imperative, for the simple reason that if we do not remonetize gold, the international market could demonetize our dollar.?

Mr. Kemp had the foresight to comprehend that America?s leadership in the world should not be taken for granted. It requires us to adhere to core principles of integrity, which includes the reliability of our own monetary standard.

As Mr. Kemp affirmed in a 1988 presidential campaign speech, ?I am a radical believer in the idea that the U.S. Dollar should be so honest, so sound, so trustworthy, so good, so predictable, so lasting in value, that it?s as good as gold.?

Championing the cause of the gold standard was more than good politics, though. It was a matter of commitment to the highest ideals of a nation dedicated to growth and opportunity.

From Mr. Kemp?s perspective, the dependability of the U.S. Dollar reflected the destiny of our country. He believed the U.S. Dollar should be as honorable and steadfast as the American idea itself.

Removing Capital Gains Taxes from Precious Metal Trades

Recently lawmakers in Idaho and Arizona have passed bills removing Capital Gains Taxes from transactions involving gold and silver bullion.

Normally, when individuals sell gold or silver they must pay capital gains on any increase of the value of their precious metal investments.

However, many consider precious metals, especially gold and silver, to be a form of currency, not an investment in the traditional sense.

It seems that lawmakers in Idaho and Arizona have now realized that their citizens shouldn?t have to pay taxes on their precious metal holdings simply because of the Federal Reserve?s questionable dollar related philosophies.

Gold & Silver Moving Toward Role As Currency

So now we have two states in the last few weeks that have passed bills removing capital gains tax on gold and silver. The Arizona and Idaho legislation is a noteworthy step towards the reintroduction of precious metals in their rightful role as both real money and as a high quality storehouse of value.

Gold silver idaho currency

Idaho and Arizona lawmakers recently voted to eliminate capital gains taxes on gold and silver trades, helping to move the precious metals toward their role as currency, rather than investments. [Image: Tenth Amendment Center]

In 2011 the state of Utah was the first state in 80 years to pass a bill that made gold and silver legal tender once again. Thus, citizens in Utah are legally allowed to use silver and gold to pay either taxes or for goods and services if both parties agree.

But what’s even more interesting is that Utah just recently introduced a bill for a State Gold Repository. This bill would build on the state?s Legal Tender Act, creating a foundation for further action to encourage the use of gold and silver as money.

This would be still another step toward breaking the Federal Reserve?s monopoly on money. The legislation would add several key provisions to the state law designed to encourage the use of gold and silver as legal tender.

Passage would set the stage for the expansion of gold repositories in the state and authorize further study on numerous sound money policies. Specifically, this bill authorizes the investment of public funds in specie (coins with precious metal content) legal tender held in a commercial specie repository.

Demand For Gold & Silver Will Increase When Dollar Falls

As I write this, we now have three states encouraging the use of gold and silver as real money. Not only does this legislation help to reintroduce gold and silver as sound money, it also sets the stage for new depositories across the states to house citizens? precious metal holdings.

Granted, there are only three states onboard with plans equating precious metals with currency. However, I believe that this is just the start for numerous other states to follow suit. The dollar will eventually tumble due to massive monetary printing and staggering debt.

Americans are hopefully preparing for what may be on the horizon. Precious Metals are currently being valued in a manipulated highly leveraged gold and silver paper trading market, a system that cannot last forever.

When the paper markets finally crack under the massive weight of debt and derivatives, there will be a mad rush of investors looking for gold and silver. The overall demand for tangible assets will lead to shorter supplies and higher prices for precious metals.

Recommended Viewing: Get It. Got It? Good.

Grant Williams’ presentation from Mines & Money in London in December 2016. A follow-up to Nobody Cares which focuses on gold’s performance in 2016, the reaction to Donald Trump’s election and joins a series of dots that may lead to the end of the petrodollar system and a new place for gold in the global monetary system.