Gold 1980 Vs. Today

When discussing gold investing, the first thing that comes to mind is 1980, the last year of a major and historic run up in the price of gold. From 1971 to 1980, gold went from 35 dollars per ounce to 850 dollars per ounce, up over 2,300%. This really puts into perspective the current run up in gold. Since 1999, gold is up a healthy 580%, but in order to match 1980 it would have to eventually rise to over 6,000 dollars an ounce.

Are we saying that this is 1980 all over again? No, comparing the two run ups in the price of gold is like comparing the moon landing to fly fishing, there is no comparison. First off, in 1971 President Nixon closed the gold window essentially taking the dollar off the gold standard. Shortly there after, in 1974, Americans were allowed to officially purchase gold bullion allowing Americans to enter the gold market for the first time since FDR made it illegal to own investment gold. From 1933-1974, Americans were legally allowed to own gold jewelry and collectible coins, not gold bullion. With inflation on the rise from Vietnam and new entitlement spending, gold buyers in the mid 1970’s found themselves in the perfect storm. Gold rallied until it reached bubble mania, average everyday people purchased gold in order to make a profit. Just like all bubbles, everyone wanted in as they saw an easy profit.

With public participation, the bull market of the 1970’s turned into bubble mania with gold rising 268% in 1980. Imagine if cable reality TV shows would have been around back then, we would have had shows about gold flippers and real life treasure hunters. By the 1980’s inflation was soaring and the Federal Reserve was using everything it had to tame it, key lending rates were set in the teens. After the bubble burst in the gold price, gold officially fell off of everyone’s radar and for the first time in human history, the world didn’t care about gold. Gold was no longer money, the fiat world of constant credit expansion and money printing had replaced absolute value with perceived value. Currencies were no longer held up to a gold standard, instead fiat currencies were valued against other fiat currencies, a race to the bottom so to speak, yet graded on a curve. Looking at price inflation from 1800 to 1971, with the exception of war time, prices were stable. However, from 1971 to 2010, with government and bankers allowed to create as much money as they wanted, we have seen a 500% increase in price inflation.

So, here we are 40 years later (from 1971) and we find ourselves in a crisis of confidence. After seeing the largest credit and monetary expansion in history, the world finds itself doubting not only government and stock markets, but even the fiat currencies that were supposed to be as good as gold. Which leads us to one of the most striking differences between 1980 and today.

During the late 1970’s gold mania broke out because people wanted to make a profit, hedging against inflation was certainly a component, but that’s not what creates bubbles. Today, people are buying gold not because they are focused on making a profit, but because they are focused on not losing. Though most investors don’t understand gold or own any of it themselves, the few that are buying it, are buying it for protection. Again, a hedge against inflation is a catalyst for many, but the deflationist out there are buying gold too. Gold is money, so whether you believe in deflation, inflation, or stagflation, gold is the alternative to the entire forex. With the exception of the last 40 years, gold has been money, a medium of exchange, a constant unit of account. Relative to the price of everyday goods and services gold has held its purchasing power.

So, could gold become a currency again? believes the real question is not could gold become a currency again, but when? If you look at the trends, China, Russia, and other middle eastern nations are already talking about having a future reserve currency with some sort of gold backing, perhaps a mix between gold, commodities, and fiat currencies. Last year in Malaysia, an Islamic currency was introduced as an alternative to fiat currencies. Gold and silver Dirhmas, about 625,000 dollars worth, had been introduced to the public for everyday transactions. The Dinar coins are set to Islamic law, 4.25 grams of gold and 3.0 grams of silver.

Though they are not considered legal tender by the Malaysian government, when given the choice, business owners, taxi cab drivers, and others are choosing the gold and silver coins. This doesn’t sound like 1980 if you ask us. In fact, it’s just the opposite, in 1980 gold had just been forced into retirement. In 2010, people have seen the result of our 40 year experiment and are starting to demand gold. India, China, and Russia are emerging as the next big players in the financial world and they are also some of the world’s biggest buyers of gold. Gold for the last 40 years has been a decoration, but the current trend is decoration no more.

1980 Vs. Today

  • The Federal Reserve’s key lending rate was in the teens, today it’s around zero percent.
  • Gold had just been retired as a currency. Today, gold is being accumulated by nations as a currency diversification.
  • By 1980, bubble mania had set in and gold was being purchased to profit. Today, it still isn’t understood or held by most investors. Those that are buying, are buying not to lose.
  • The U.S. government was trying to tame inflation. Today, economist are worried about deflation and are advocating for more inflation.
  • Paul Volcker was in charge at the Federal Reserve and today, it’s “Helicopter Ben,” need we say more.
  • By the early 1980’s, after 204 years, the United States had an official deficit of around 1 trillion dollars. The last trillion added to the deficit only took 7 months.
  • In 1980 there are stories of gold shops that had lines that stretched outside the doors. Today, Americans are lined up outside “We Buy Gold” stores to sell gold. Sure there are gold commercials on news stations, but the massive public participation needed to fuel a bubble isn’t there. When “Cash for Gold” is running ads on Super Bowl Sunday, that’s a sign that the public is completely ignorant of the gold bull market, remember Cash for Gold is a company that buys gold from the public. In fact, CBS did a report recently that showed the public not only selling gold, but selling it for 10 cents on the dollar to companies like Cash for Gold.

When looking at ways to purchase gold, we believe all investors should hold some physical gold. Having money in your possession is always smart in case of an emergency. When it comes to seeking more than just safety, it is wise to look at history before making any decisions. We here at believe the fundamentals for mining stocks are out of this world. The last time gold was recognized as real money in a modern society, mining shares and gold were on average about 25% of global financial assets.

Today, they are just 0.9% of global financial assets held. So, if you believe like we do that gold is coming out of retirement, then mining shares is where you want to be. Positioning yourself not only to benefit from a rising price in gold, but an exploding global demand for the precious metal of choice. Just to give you an idea on how big this could be, in today’s dollars, if the demand for gold went up to that modern day historical average of 25% of all financial assets, gold would need to be around 31,000 dollars an ounce. We are not making any price predictions today, but certainly the math is there for not only protection, but the opportunity to make a huge profit by getting in front of this smart money trend.

Big Interview Coming is very excited to share an amazing interview with our members, we recently interviewed James Turk This 20 minute interview is currently being edited for a YouTube release. We discussed a wide range of topics, including a possible 2008 repeat, gold standard, and how the Europecrisis will play out over the next few months. Mr. Turk believed that this was an amazing buying opportunity for gold and silver. In fact, while discussing price targets, Mr. Turk stated that his research is showing that we could see an $11,000 gold price in the next 4 years. As soon as we have this interview ready, we will email it out to you.

Super Idiots

Members of congress and even some from the super congress are already giving hints that the so called “automatic cuts” might not have to happen. Yesterday, Senator John Kerry of Massachusetts said, [su_quote] lawmakers have a year before the automatic spending cuts are set to occur. We have an election between now and then and a lot can take place.[/su_quote] Hint-Hint, the new congress will have control over the 2013 budget, not the one that passed the automatic cuts. Not to be outdone, Senator John McCain has already teamed up with Representative Maxine Waters in order to use legislative levers to stop automatic cuts from taking effect. As noted in our articleyesterday, Senator Jon Kyl of Arizona has stated that they would look for a way “to work around” some of those automatic spending cuts. Expect plenty of more downgrades to come, the mob of democracy has voted themselves gifts and they are not going to give them up easily.