With the politics of the economy turning volatile, I tried to keep out of that discussion on this blog to keep the discussion to coin-related issues. But with the price of gold climbing to its highest nominal rates of all time, it is difficult to ignore the market. As I write this, gold is current 1793.20 per troy ounce on the spot market.
Market volatility has been blamed on many fronts. It started with Standard & Poor’s, the rating agency that gave top grades to derivatives that caused the market failures in 2008, downgrading the credit rating of the United States to AA+ from AAA. The word came across the pond that the PIIGS of Europe may not only be too big to fail, but too big to help. The PIIGS are the five Eurozone nations who are either in economic collapse or near one: Portugal, Italy, Ireland, Greece, and Spain.
The more volatile the markets are, the more investors run for gold running up the prices.
But if you think the prices are high, consider what happened on January 18, 1980 when gold closed at 850.00 per troy ounce. That run up of gold came during the time that the Hunt Brothers were trying to corner the silver market as a reaction to the down economy and the rise in the solver market. Adjusted for inflation, $850 in 1980 would be equivalent to $2,328.44 in today’s dollars. If this does not dampen you excitement over the price of gold, you could watch the argument between “experts” who think $2,000 per ounce is possible versus others saying that gold could plummet in value. Consult a profession before you make any investment.
Silver has not faired as well as gold. While trying to figure out why, I found a lot of information that while both metals have industrial applications, gold is seen as a financial metal while silver is more plentiful and is considered a more industrial metal. Rather than investors trying to have silver keep pace with gold, the way gold kept pace with silver in 1980, the old 15-to-1 and even 25-to-1 silver to gold ratios are no longer valid measures. At the current 39.29 per troy ounce, the ratio is 44-to-1. Some believe that 35-to-1 and higher may be the new “normal.”
For a little perspective on the price of silver, it is currently training at 39.29 per troy ounce, down from its high of 48.70 on May 28. That did not pass the nominal close of 52.50 reached on January 7, 1980 when the Hunt Brothers tried to corner the silver market. Adjusted for inflation, the Hunt Brothers ran the price to the equivalent of 143.82 in today’s dollars. Even at a 25-to-1 ratio, the price of gold would have to climb to $3,575 per troy ounce before the value of silver breaks 1980’s records.
In 1980, the Dow Jones Industrial Average closed at 832.00 on January 7 and 867.15 on January 18 before dropping in March. It would take the market until November 20 to close at over 1000 for the first time in its history. After dropping back and flirting with 1000 points a few more times, it would take until 1982 before the market climbed and stay over 1000 points.
What have we learned from this look at history? Not much. At first glance it looks like the economy is not as bad as it was in 1980. But that history was caused by market manipulation. Will history repeat itself? Time will only tell.