Gold trading: a brief overview of gold price history
12:13, 25 January 2019
History of the gold standard
To understand why the price of gold didn’t substantially change until 1970, you have to first look at the gold standard. The gold standard is a monetary system whereby legal tender is backed by reserves held in gold, and many countries adopted this system in the 1800s. So the value of currency was pegged to gold, and consequently very little divergence in the price of gold occurred.
In 1844, the Bank Charter Act established that Bank of England issued notes were fully backed by gold and they became legal tender. The US had been backing its currency with gold from 1834, equating $20.67 to one ounce of gold, but this wasn’t formally adopted until 1900 when Congress passed the Gold Standard Act 1900.
During both world wars, and the Great Depression, the gold standard was abandoned as a system of money by some states. In 1944, the Bretton Woods system was established in the wake of WWII between the US, Canada, Western Europe, Japan and Australia. This agreement was designed to achieve relatively fixed exchange rates by pegging currencies to gold. It wasn’t until this system collapsed in 1970 that the price of gold was allowed to free float on financial markets.
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Gold price history: gold price history chart
Let it be noted that the historical gold price data is quoted per ounce. Due to the gold standard, the price of gold didn’t fluctuate much from 1792 to 1972, floating around the $20 mark until the 1930s where it increased to the $30 mark.
The 1970s were a manic time for the price of gold, where it experienced a substantial bull run for the decade. The US Federal Reserve, under the instruction of President Nixon, stopped honouring the dollar’s value in gold; marking the collapse of the Bretton Woods system and an era of a fluid gold trading price.
Gold didn’t start to substantially move in price until 1973, where it reached $106, in part due to rising inflation in both the USA and the UK. A mixture of US and UK economic turmoil throughout the 1970s arguably contributed to a rush to buy safe-haven gold in order to hedge against inflation. The price of gold reached an historic high in 1980 of $850, due to high inflation at the hands of high oil prices, Soviet intervention in Afghanistan and the uncertainty caused by the Iranian revolution..
During the 1980s both the USA and the UK started to dampen inflation under the Reagan and Thatcher administrations respectively. Gold dropped to the $410 mark and remained within this relatively stable trading range until dropping to $288.
By 2000, gold had fully established itself as a safe haven investment. So it is no surprise, given the political turmoil of the 2000s, that the gold price saw its most rapid gain in modern history. In the wake of events such as 9/11 and the 2003 invasion of Iraq, investors once again rushed to purchase gold. This sentiment was even more prominent once the 2008 global economic crisis hit. Since then, speculation that the instability throughout the noughties had caused a bubble in the market has led to slight fall in the price of gold. The gold price trend has been fairly stable, trading relatively sideways around the $1,300 in the last few years. The highest value that gold has ever been is $1,917 in 2011.
Read more about gold trading:
Gold trading: is gold a good investment?
Gold trading: a brief overview of gold price history
