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Off to the races

Wow, look at that parade of round numbers yesterday. Oil hit $100 a barrel. Gold went through the $850 record price of 1980 and closed at $857. Silver shot through $15. If it was a hard asset, it went up in price.

Those of us with long memories might want to cast our minds back to January 1980, the last time gold was trading at such a lofty level. It might be a cautionary tale, because 1980’s rise did not have a happy ending.

The first trading day of 1980 saw gold rise $26.80 to close at $575.50 a troy ounce. By Jan. 21, the price hit a trading high of $875 and closed at $825, while the London price, which was the benchmark, was at $850.

The reasons for gold’s rise at that time are the same reasons as today. Inflation was perceived as rising out of control. The dollar was weak. The future was uncertain.

Markets ran as far and as fast as buyer enthusiasm could carry them. But then buyers either lost their enthusiasm or ran out of money, with a little help from market trading authorities who discovered that Nelson Bunker Hunt had led an effort to try to corner the silver market. Controls were put on trading and the attempted corner was unwound, much to the detriment of silver’s price. It went from $50 a troy ounce to $10.80 by March 27, 1980.

Gold followed the downward path set by silver. It hit $463 by March 27. It was an event that was followed by 20 years of a generally down market.

January market enthusiasm is an interesting phenomenon to watch. Let’s hope it doesn’t get carried away as it did in 1980 and set the stage for a painful decline.

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2 Responses to Off to the races

  1. Mark says:

    Since gold is now where it was 28 years ago,eg86e adjusted for inflation it is dirt cheap.

  2. Scott says:

    If you use the inflation calculator at the Bureau of Labor Statistics (http://data.bls.gov/cgi-bin/cpicalc.pl), to buy $850 worth of gold in 1980 you would have paid $2,168.09 in today’s money. Today’s $850 bought only $333 worth of goods in 1980. In short, if you invested in gold in 1980 and held it expecting a positive return, you would continue to lose its value.

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