Historical Price of Gold

Historical Price of Gold

A Historical View of the Price of Gold

The total amount of available gold in the world today is about 156,000 tons. Each year only 2,500 tons are mined from which the 2,000 tons are absorbed by the jewelry industry and the rest 500 tons are used as investment gold. As gold production is controlled and concentrated in a few countries -increased demand is often not satisfied by supply. Historically, gold was used as the world’s currency and during periods of financial turmoil gold is considered by many investors as a “Safe Heaven”. During these periods the price of gold is making excessive upward movements without intermediate corrections. Investor’s psychology plays a huge role in gold price movements. Market psychology beats the laws of demand and supply. In 2009 (in the middle of the financial crisis) market demand for gold fell 32% while the price of gold had a significant increase.


Gold Rally Price Explanation

The current rally of the gold price begun in 2001 -when the price of gold has fallen to 300 $ per Ounce. The current gold price rally is based upon:

∟ High accumulative government debt in the West Economies an outcome of the financial crisis of 2008.

∟ Money- issuing measures by the US FED which create inflationary concerns. High inflation leads to a weak US dollar which respectively leads to a high price of gold.

∟ Many investment portfolios around the world use more gold as a risk diversification tool during this period of financial instability.

∟ US Dollar is still weak and historically when the US Dollar is weak the price of gold is strong.

∟ Gold jewelry industry increased demand -demand deriving mainly from China and India

∟ The controlled and limited supply of gold which is in contrast with the unlimited and uncontrolled demand for gold.


Looking at the historical fluctuations of the Gold Price

In the chart below is presented the price of gold (New York Market) between 1960 and 2011. The black line represents the daily closing while the dotted line represents the 10-year moving average price.

Chart: The price of gold over the past 50 years

Note: The black line represents the daily closing and the dotted line represents the 10-year moving average

Current gold price rally shows similarities with the rally of the 70s.

Gold Rally during the 70s

In 1971, the Bretton Woods system was officially ended. By that time, the price of gold was traded for only $41 / Ounce while ten years later, in 1980, the price of gold exceeded $600 / Ounce. The gold price rally of the 70s can be also attributed to the inflationary concerns created by the oil crisis during that particular period.




Agreements and key systems to control the price of gold until 1971


In 1871 the Gold Standard Rule was implemented in all industrialized countries. Due to the gold standard rule, money circulating in these countries should match the corresponding value of gold they owned. According to this principle, no state could issue new money without the corresponding gold reserves. Gold standard rule controlled the global economy and historically restrained inflation. The role of the Gold Standard Rule started to fade at the end of World War II. Germany was forced to pay huge war reparations and simply didn’t hold enough gold to apply the Golden Rule. So Germany was forced to withdraw its local rate from this global system. By that time it was realized that the world monetary system could function without the existence of the Golden Rule. The gold standard rule was formally ended in 1933 when a conference in London proposed a new monetary system that was later established as the Bretton Woods System. In 2009, Russia proposed the return of the Golden Rule in the global monetary system, but it is considered highly unlikely and even impossible to be realized.


The Bretton Woods Fixed Rate System applied a stable exchange rate between the currencies of 44 allied countries that won World War II. This fixed-rate system placed the US Dollar as the center of the global monetary system –the US Dollar was linked to the price of gold at a fixed ratio of $US 35 per one ounce of gold. Bretton Woods System was officially abandoned during 1971.


In 1999 the Washington Agreement on Gold (WAG) was signed. According to the WAG, central banks of all signatory countries and organizations (Countries of Europe, US, Australia, IMF, and BIS) may not sell more than 500 tons of gold each year. Since 2004, the limit moved lower at 400 tons of gold annually.


Gold prices during the period 1257-1945 (British Official Price)

For hundreds of years, the price of gold was characterized by stability. Thanks to the excellent records of United Kingdom we are able to trace with accuracy the price of gold (from year to year) from 1257 until 1945 when the Official UK Price ended (British Official Price). The chart below shows the price fluctuations of the precious metal in British Pound/ounce. Note that in 1791, gold started to trade also in the New York Market.

Chart: The Price of Gold during the period 1257-1944

Observing market data from all of the above tables concludes that the gold market was for hundreds of years a place of stability but since 1970 the gold market entered a phase of strong fluctuations that are continuing nowadays.


Countries with the highest Gold Reserves

According to the World Gold Council, the largest gold reserves in the world are presented. Blue bars represent the highest per-capital reserves. Switzerland is found at the top, followed by Lebanon and Germany. As concerns the countries total reserves, the U.S. is on the top holding 8,134 tons of gold, followed by Germany holding 3,401 tons of gold.

Chart: Highest Gold Reserves per capital

Source: World Gold Council


Trading Center (2012)

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