The History of Gold As An Investment
It’s believed that humans and gold go back as much as 40 millennia. We don’t know when exactly it became a symbol of wealth, but the earliest archaeological evidence of it dates to 3,000 BCE and Ancient Egypt.
The Lydians under King Darius started using gold coins as currency in 564 BCE. And if you’ve slept through the history class, Lydians are the ones ruled by that King Croesus.
Great Britain was the first country to create the gold standard, with the US and others catching up quickly. After the devastation of the World Wars, allied nations found the need to create a new financial system. The result was the Bretton Woods Agreement of 1944 when the price of gold was tied to the US dollar.
Gold rushes of the 19th century brought up gold as a great object for speculation, while the contemporary investment game gained momentum in the 1970s.
After the Vietnam War, America’s budget was in shambles. That led President Nixon to nullify the Bretton Woods Agreement, bringing the gold standard to its end. Though there would be several attempts to bring it back to life, the price of gold rose too high, making it impossible.
And those prices did skyrocket. In 1971, the price of gold was $35 per ounce. It peaked at $180 per ounce in 1974, before falling to $110 in 1976. The following 2 years saw significant price rises again, while the decade ended with gold costing $460 per ounce.
This spike was the result of the combination of global political instability and energy inflation. Gold investors went into buying panic, inflating the prices and setting an interesting tone for the following decade.
The 80s began with the price of gold being $595 per ounce, with a couple of weeks where it went over $700. By the next year, it dropped to $400, which was also the price for 1989. For the rest of the decade, the numbers moved between $300 and $500.
This was by no means a boring decade, and we’re not only talking about spandex and the hair. The Soviet Union invaded Afghanistan, America responded, Iranians held 53 Americans hostage for 444 days, America responded, inflation, Black Monday, etc.
While political events made the gold prices jump all over the place, it’s interesting to see that they stayed rather stable during the stock market crash in 1987. The price rose to $491.5 that very day, falling to $481 and $463 in the next 2 days. The price did go south for a while because people were selling everything. However, it recovered by the end of the year and even went up to $500.
In the 90s, the price of gold was very low. 1990 closed at just under $400, with the rest of the decade staying in 300s, sliding into $290 in the last 3 years. This was not only the case with gold, oil was very cheap as well.
As always, there were a couple of factors involved, but the most prominent were debt and austerity. Europeans implemented austerity before switching to Euro, Asia went through an economic crisis in 1997 and 1998, and the Clinton administration implemented a tight fiscal policy.
On the other side, we had entrepreneurs and regular people with a lot of private debt.
Unlike the case of Black Monday, when the dot-com bubble burst, gold prices suffered for a while. They recovered eventually because people stopped investing in stocks and moved back to the shiny stuff and real estate.
The New Millennium
The first couple of years of the new millennium were going at the speed of the previous decade. In 2004, investors start buying gold as risk insurance for portfolios. That starts moving things upwards again.
However, it’s the late nineties when things become very interesting. The combination of the recession and Iran’s nuclear program push the price of gold into 4-digits for the first time. Since 2010, the price of gold never went under $1000, going almost up to $2000 recently.
The most significant dip of 2015 was caused by India’s surge in domestic inventory and China easing up on purchases. A couple of other similar events came after the discoveries of new mines.
During the pandemic, we saw the price of gold go up by 24%, reaching $1950 by the end of 2020. This again confirms that at the time of upheaval and uncertainty, gold is a safe space for retirement accounts.