It’s no secret that gold has a long history of being a valuable asset. From bullion bars to jewelry, dental crowns and even electronics, gold is still commonly used for investment, luxury and industrial purposes today. While gold has always held intrinsic value as a rare element, the market price of this precious metal has seen many fluctuations throughout the years. Lately we’ve seen new record highs – gold just surpassed a whopping $2,747 per ounce this week!
This prompts the question: what factors influence the market price of gold, and how can we leverage historical trends to forecast its future performance? Here’s a quick rundown on the highlights from gold’s price history.
The Gold Standard
Gold’s rich history of economic importance is largely tied to the gold standard. This is a monetary system in which the value of a country’s currency is directly tied to pure gold. Countries using the gold standard agree that paper money can be converted into a certain fixed amount of gold.
The United Kingdom was the first major country to officially enact the gold standard in 1821, and the U.S. officially adopted the system in 1900 with the passage of the Gold Standard Act. Many other nations including Germany had also adopted the gold standard by this time.
While people have differing opinions about the benefits of this system, the gold standard originally helped to establish trust and economic stability. Since currencies were tied to gold’s value, people trusted that money held an intrinsic value. Even long before the first iterations of the gold standard, people of early civilizations trusted gold as a store of wealth. After all, it’s a scarce resource that’s been valued since ancient times.
Gold And Price Stability
Since a country’s money supply was limited by the amount of physical gold that it held, governments couldn’t just print excessive amounts of money. This reduced the risk of inflation and helped maintain price stability.
The gold standard also established fixed exchange rates between countries, which made international trade simpler and more predictable. This predictability encouraged more investment and long-term planning, as people trusted that they could rely on money maintaining its value over time.
Impacts of World War I
The first World War caused financial strains that forced some countries to temporarily abandon the gold standard. The demand for gold surged amidst economic instability, which, as we’ll see, is a reoccurring trend throughout history.
While the gold standard wasn’t abandoned altogether, it was definitely in limbo during the war. This led to a lack of confidence in the system, and people began to realize that a more flexible currency to support the global economy may be beneficial.
As gold supplies continued lagging behind economic growth, the British pound sterling and the U.S. dollar became the global reserve currencies.
The Great Depression
In the early years of the Great Depression, the U.S. and many other countries were still on the gold standard. The U.S. had the gold price fixed at $20.67 per ounce. However, given the economic climate of the time, the gold standard wasn’t helping to alleviate the crisis. The system limited the government’s ability to expand the money supply and combat deflation, which only made things worse.
Emergency Banking Act of 1933
The aftermath of the 1929 stock market crash led to a severe banking failure. By 1933, over 4,000 banks had collapsed. Many feared a devaluation of the dollar, leading to a significant outflow of gold from the Federal Reserve to both foreign and domestic investors. This ended up depleting the Federal Reserve’s gold supply until they could no longer convert currency to gold. In response, President Franklin Roosevelt declared a national banking holiday.
The Emergency Banking Act of March 1933 empowered the president to control gold movements. On April 20th, Roosevelt suspended the gold standard, prohibiting gold exports and conversions of currency into gold. This stopped gold outflows.
In May of 1933, the government further weakened ties to gold with the Thomas amendment to the Agricultural Relief act, which allowed Roosevelt to reduce the gold content of the dollar by up to 50%.
Gold Reserve Act of 1934
The next year, Roosevelt signed the Gold Reserve Act of 1934. This prohibited private ownership of gold and transferred titles from individual holders to the U.S. Treasury. While the act successfully halted the outflow of gold, it did not change the mindsets of true gold bugs – people who are perpetually confident in gold as a source of wealth.
Word War II and the Bretton Woods Agreement
About a decade later, World War II was winding down and the Bretton Woods Agreement was developed by the leading Western countries. The Bretton Woods system valued all national currencies in relation to the U.S. dollar, which became the primary reserve currency. The dollar was convertible to gold at $35 per ounce. This system became the framework for global currency markets until 1971.
By the end of WWII, the dollar was the only currency that was still backed directly by gold. However, as the world recovered from the war, U.S. gold reserves dropped due to high demands for imports and as more money was directed to war-torn countries.
Another few decades went by, and the late 1960s experienced a surge in inflation. This was one of the final catalysts for the collapse of the gold standard.
When Did the U.S. Abandon the Gold Standard?
In August of 1971, President Nixon nixed (ha!) the direct convertibility of U.S. dollars into gold. And because the international currency market had become largely reliant on the U.S. dollar thanks to the Bretton Woods agreement, the loss of money’s connection to gold created a worldwide effect. This marked the beginning of the fiat currency era.
Market Crash of 1987
Gold typically rallies following financial crises as investors seek a safe haven, but the 1987 market crash, commonly known as Black Monday, was an outlier. While most periods of economic uncertainty are followed by a prolonged surge in gold prices, this market crash only triggered a brief and modest increase for gold. Per-ounce gold prices rose by about $40 for a brief period, followed by a quick decline. This atypical performance for gold can be attributed to a range of complex factors, including investor behavior, currency dynamics and liquidity needs.
The Great Recession
The Great Recession following the market crash of September 2008 triggered an increased demand for gold. The metal performed exceptionally well as a safe haven, benefiting from its lack of correlation with other failing asset classes.
In fact, gold prices were already climbing before the crash in early 2008, reflecting concerns about the health of financial institutions. In March of 2008, gold prices reached $1,000 per ounce for the first time ever.
Gold then saw a dip during the height of the financial crisis in September, as investors had to sell assets like gold to cover for losses in other areas. But prices quickly rebounded by the end of the year and into 2009. By 2011, the metal reached an all-time high of around $1,900 per ounce!
All in all, gold provided stability through the 2008 recession, which led to significant prices increases in the following years.
The COVID-19 Pandemic
Similarly to the 2008 recession, gold saw a dip at the initial onset of the COVID-19 pandemic in 2020. Investors sold off their gold, along with other assets, to raise funds during a liquidity crisis. But despite the early dip, gold prices rebounded pretty quickly: by mid-March, the rally began as interest rates were cut and stimulus packages were issued, raising concerns about inflation and currency devaluation. In August of 2020, gold surpassed $2,070 per ounce, setting a then-record high.
The Gold Price Reaches New Heights in 2024
As we’ve seen in the past, gold tends to shine during times of economic uncertainty. And there doesn’t always have to be a major stock market crash or one specific event to spark this uncertainty. Today’s economic/geopolitical climate has fueled major growth in gold prices. Economic concerns are felt far and wide, with a wide range of factors are at play including inflation, geopolitical tensions, supply chain disruptions and more.
Overall, 2024 has been a remarkable year for gold – we’ve seen several new all-time highs reached in March, May, August, mid-September and October. Just this week, we saw a new high of $2,747!
Is it Too Late to Invest in Gold?
Gold’s soaring prices beg the question: if you haven’t bought in yet, is it too late to join the gold rush?
Nope, it’s still a good idea to invest in gold. Many economic uncertainties remain as geopolitical tensions persist and inflation lingers. Investing in gold now can help to diversify your portfolio, decreasing overall risk. If global tensions escalate, which wouldn’t be shocking, or economic conditions worsen, gold prices will likely increase even more, and you could reap returns on your investment.
Gold Stands the Test of Time
One thing is certain: gold has a longstanding history of maintaining its value, performing well even when the rest of the market is in trouble. The historical performance of this precious metal leads us to believe that this trend will persist for years to come.
However, precious metals like gold are finite natural resources, and preserving them is critical. One of the best ways to do that is through recycling, which happens to be our specialty at Garfield Refining.
Work With Garfield: Recycle Your Gold, Buy Bullion and More
Garfield has been in the precious metals industry since 1892, and we’ve seen the many ups and downs of the gold market. We recognize that precious metals will always be valuable, regardless of market price fluctuations. If you have gold or other precious metals (such as silver, platinum or palladium) that you’re looking to sell in today’s favorable market, we are your premier resource for the highest payments – and, perhaps more importantly, ensuring that your metals won’t go to waste.
We accept many forms of precious metal scrap, including jewelry, coins, flatware and even dental material. Plus, we also sell a variety of precious metal bullion products, including gold and silver coins and bars!
Garfield Refining is your one-stop shop for buying and selling precious metals, with no hidden fees or shipping costs. Browse our bullion selection or start selling your scrap by downloading a free shipping label today!