You'll be surprised to learn that the main investment in the 1970s wasn't stocks, bonds, real estate or traditional investments, but it was gold that soared 2,300%. UU. As in subsequent crises, buyers saw gold as a (supposedly) safe haven and monitored the Live Gold Price closely. However, the markets were not as developed or as liquid as they are today. A lot of people were betting on the same idea and, consequently, price movements were extreme.
After being banned for decades, U.S. private investors may also lack the expertise needed to deal with the “new asset class”. Given the proximity of excellent gold results to the end of the convertibility of the US dollar into gold, we believe that it is likely that the price of gold has remained artificially low for an extended period (or that the price of the US dollar has remained artificially high) and that the subsequent abandonment of convertibility has caused a period of adjustment both in consumer prices and in the price of gold in relation to the US dollar. In other words, the abandonment of the gold standard was partly the cause of inflation and the rise in gold prices.
The large increase in gold prices in the 1970s was not an endogenous macroeconomic response to inflation, but was the direct result of the same event that drove part of inflation. In the absence of a gold standard, adjustments in consumer prices and gold would probably have occurred over a longer period of time and, in a less disruptive way, the gold standard acted as a prey holding back natural economic forces. Over the years, member countries of the system accumulated such vast reserves in U.S. dollars due to their current account surpluses that they surpassed U.S.
gold reserves. In 1979, a second uptick in oil after years of global energy inflation, together with global political instability, caused gold investors to fall into a final buying panic that finally led to the peak of gold prices in January 1980. As we have repeatedly said, it is prudent to keep gold and gold stocks as part of a diversified portfolio. In fact, the price of gold in dollars was kept artificially low thanks to the guarantee of explicit convertibility into US dollars at a fixed rate.
Gold reached its all-time high in January 1980, two months before the start of the hostage-taking at the United States embassy in Iran. It is important to note that the high inflation of the 1970s was immediately preceded by the final abandonment of the gold standard on August 15, 1971, when Richard Nixon announced that the United States would no longer exchange currencies for gold. In 1971, the United States finally decoupled the dollar from gold (the “Nixon shock”) and, in 1973, the Bretton Woods system came to an end. This, combined with its limited availability, means that gold was also used to support currencies, especially under the new Bretton Woods monetary system introduced after World War II.
However, in a world of NIRP, at least gold doesn't guarantee a loss, unlike some government bonds, which guarantee that you'll get less money than you invested. The following figure shows that gold deposited in the Federal Reserve to support convertibility plummeted between 1949 and 1970, and when it became clear that convertibility could not be maintained indefinitely, parity was abandoned and, later, the price of gold rose in relation to major currencies. He believed that the idea that gold has a permanent intrinsic value was a myth purported by central banks. When the ban on gold in the United States was lifted in late 1974, the price had risen to nearly 200 U.S.
dollars. In fact, the demand for jewelry in countries such as India and China can, at best, support gold prices. If every ounce of this gold were put together in a large cube, each side would measure approximately 21 meters. .
