Tight money and rising interest rates cut gold’s price by nearly half from the January 1980 peak to March of that year.
Yesterday’s Federal Reserve policy announcements, which led to rising interest rates, did a number on gold, but so far nothing so dramatic as what occurred in 1980.
Gold is now at $1,325.90 on the Kitco website after having been in the neighborhood of $1,380 just days ago.
Perhaps congratulations are due to regular buyers of gold American Eagle bullion coins. They did not chase the March rally at all. They have purchased only 8,500 coins so far this month.
That’s quite a drop from the 62,500 sold in January and 22,000 in February.
You might say that they are deer in headlights as the Russia-Ukraine Crimea crisis unfolds.
Or you could say that after more than a dozen years of involvement with physical gold in the price uptrend that began in 2001, they are sophisticated buyers. They can smell a real uptrend like a camel can smell water in a desert.
That would imply that the price hikes in gold since the beginning of the year are in question.
If monetary conditions continue to get tighter and interest rates continue to rise, that might be the correct interpretation.
Rising interest rates increase the cost of owning gold. Many players in the market hold their inventories and make their investments with borrowed money.
Rising interest rates restrict their maneuverability.
And after almost 13 years since gold bottomed, some holders might be deciding to cash in because the passing years have taken them to retirement.
The average age of coin collectors is not all that far removed from retirement age and you can be sure those who are in it or are near it are making perfectly rational decisions about their gold holdings.
That could make them simply creatures of personal needs – or they might be smarter than gold buyers in China and India.
I think I prefer the latter interpretation.
Buzz blogger Dave Harper is winner of the 2013 Numismatic Literary Guild Award for Best Blog and is editor of the weekly newspaper “Numismatic News.”