Gold in “Me Decade”

Bee-Gees-Gold

Gold rose dramatically from $35.08 per ounce in 1970 to reach $870 by January 1980. This tremendous bull-run is akin to that of 2005. For a better understanding of the current run, a peak on the past might help.

Tom Wolfe, the American journalist and novelist, was remarkably precise in naming the 70s by the “Me decade”. A general individualism reaction to an extreme extent in America was dominating, even in America’s foreign and monetary policies.

Gold Price Movement from 1970 to 1980

For decades, the price of gold was fixed to $35.08 an ounce. The U.S. government gradually removed restrictions on gold and devalued the U.S. dollar (USD) in 1971. The U.S. government devalued the USD again in February 1973. Thus, the price of a gold ounce increased to reach $42.22. During this year, the U.S. government devalued the USD by 10% and cut its tie with gold fixing. After 3-months, the price of an ounce of gold reached $120 in June.

In 1974, gold was a free market as the U.S. government canceled the Gold Act and allowed citizens to hold gold. Other countries followed the U.S. and removed gold holding restrictions such as Japan. The demand on gold surged, and the price of gold reached $180 in 1975. The price eased momentarily to reach $100 per ounce by the end of 1976.

Gold price rose violently till it reached $240 by mid-1978 before declining again to $190 by the end of the year. In autumn 1979, gold price surged to $420 per ounce and jumped within weeks to the historic level of $870 per ounce in January 1980.

So, the price of one ounce of gold started at $35 in 1970 and ended the decade at $870 by 2386% increase in value.

The Economic, Political and Financial Environment

The Dow Jones Industrial Average (DJIA) started the decade at 809 points in January 1970 and ended the decade at 839 points in December 1979. It increased 3.7%, 30 points, for the whole 10 years!

On the other hand, Gold mining companies’ shares value increased four-folds by the end of the 70s. For instance; major mining companies such as “Homestake Mining” shares rose from under $5 in 1978 to above $25 in 1980. That’s around 400% increase in value in 2 years.

In 2005, the same mentality started to rise again, cloning the 70s but with modern tools. Investors are aware of the fact that one of the fundamental analysis basic concepts is “History Repeats Itself”. By widening this concept to consumers and investors physiology“it appears that the 70s are returning in a new form”. It might be disguised by more modern appearance, but the essence remains the same.

Those who lived in the 70s remember how tensioned the world was, and how the world’s superpower got involved in aggressive expansions. Haven’t the U.S. declared war on Terrorism and started to sink in the middle-east swamp? Does that ring a bell? Something more like Vietnam? The U.S. was immersed in the cold war against its nemesis in the 70s, the USSR, the same as it fights another economic and technological war against China in the 2000s. People began to lose faith in their governments, and when they do, they seek the only safe-haven they know, GOLD.