This is not a flame nor troll. Please keep it civil LOL I have long sought a detailed, precise account of events driving the Investor Death Spike in Gold, 1979. I've heard this &that - familiar glib excuses that never really explain anything. (You know: X event happens and MSNBC will say it's because of A, Barron's will say B, WSJ emphasizes C, etc. And you get the sense... they're just blind and feeling the elephant.) WHO actually bought Gold after Christmas 1979 through March 1980 and WHERE? Was it the new Revolutionary regime in Iran or their financial agents in London, dumping US Paper for Gold? The US Embassy was seized on 4 November 1979; what happened to billions in US assets held IN Iran thereafter? (Expat) Iranian Gold traders tell me the Gold Price moved because the Soviets invaded Afghanistan - but Gold didn't go parabolic when ČSFR was invaded, or when Hungary was invaded, etc. (Gold didn't go parabolic when the US invaded Iraq or Afghanistan either.) What's the REAL Gold story here, late 1979? Thx
Hmm. You ask about an event that occurred 33 years ago. It only affected a small number of people buying paper PM during an extremely short bubble, during a period of time where interest rates were 20% I can't imagine why anyone, who describes themselves as someone who has "long seeked an answer" hasn't figured out what happened and why it's irrelevant now in the 21st century. If you do a search on this forum you will find your answers as we have already discussed this many times. Since this isn't the History Channel, IMO, I'd say it does fit the definition of troll and flame since you felt it was necessary to bring these words right into your own OP and didn't ask anything about what the bullion investor should be concerned with now in the 21st century.
JB, it's probably because it showed instability between superpowers. It showed that a country that hated both the US and USSR was able to take one of the two hostage (literally and figuratively), as it defined Carter's Presidency. For all the great things that Carter did before and after the Iran hostage crisis, some people ONLY remember him for the crisis. That caused the gold spike. It doesn't matter _who_ was buying the gold, just that it was being bought in a time of turmoil.
The 20% rates were a result of the same situation. Rates prior to the hostage crisis were 10% (due to the gas crunch). They only reached 20% in Apr 1980. The two were a result of the same event, there is no causality that would make it sensible to talk about 20% interest rates. Both high interest rates AND high gold prices were a result of instability and distrust among the people. The government raised rates to increase saving to get more money in the banks. You should know this Fatima. Anyway, I do agree that this is pretty political in nature. It doesn't belong on the board. At the very least, it belongs in GD.
I worried that mere mention of the "Gold Bubble" would set someone's teeth gnashing. I wasn't proven wrong. (fwiw: I'm not convinced 1979 was a true Bubble/Mania, either.) The 1979 Event has alot of background sadly missed/dismissed here. I'm not surprised though: the convo is uniformed elsewhere, too. As NorthKorea notes, it wasn't ABOUT the US Interest Rate. The monthly interest rate in December 1979 was .0099, as in October 1979, and the Annual Rate had doubled since September 1977. Gold and interest rates rose in tandem until they didn't - Gold fell, abruptly: why? I cannot prove 'no one was selling' (late December) or that the New York market essentially froze on supply constraints while Iranians' financial agents mopped up the London market. But I've also seen no evidence that US retail was buying or selling ("widespread participation") at Gold shops then - unlike lines of Montrealers I've seen converting Cdn$ to USD$ in October 2007: http://www.cbc.ca/news/business/story/2007/10/31/dollarjump.html If the general public is a non-participant or net seller of an overvalued asset for a long time before a severe price correction, the 'shoeshine boy' isn't the pin deflating a so-called Bubble. Something else happened.
I don't consider this a troll or overly political. The answer to the question is what it is, though I am not entirely certain what the answer is. My best guess is that it was due to unprecedented inflation as the result of having to pay for the Viet Nam War followed by recession dealt with by ultra high interest rates causing deflation. Markets are rarely so simple, certainly there is more to the story. Some info here: http://bancroft.berkeley.edu/ROHO/projects/debt/1980srecession.html Iranian revolution seeming pertinent, possibly threatening petro dollar dominance, still in its relative infancy, or at least driving oil prices high enough to shake folks into preparing for the worst, thus driving the fear trade into gold prior to the recession?
You guys don't get it. Interest rates have everything to do with it. Gold is a monetary asset and a hedge against the fiat $. Interest rates = 20% = a huge decrease in liquidity. as $ liquidity disappears, hedges against the $, namely PM, become less attractive To put it in more simple terms, if you can earn $16%+/year in a simple bank savings account that has no risk and is also federally insured, there is absolutely no reason to own gold as a hedge. Gold has investment risk, physical gold costs money to hold and pays no dividend. Thus interest rates = 20% = collapse in gold prices. This, is why that situation, that happened 33 years ago, has absolutely nothing to do with what we are seeing today.
If you read my posts fatima you know I always defer to interest rates as the primary driver, but to say today has nothing to do with 33 years ago, I wouldn't go that far. Interest rates don't explain all of the parabolic run up, more so the crash. I find it interesting to understand history of such things whether or not it pertains, as it's the subject we share a common interest in.
The run up in gold prices in the late 1970s is easy. Gold had been illegal to own for close to 4 decades. When it became legal, and the fact that inflation was raging, and the fact that 2 oil shocks and all that goes with that had hit the economy, gold became a very attractive long term investment. People rushed into the newly created market. That was a one time discontinuity which resulted in a bubble. Gold has now been legal to own ~40 years and the 12-13 year run up in prices that we have now are being driven by completely different factors.
Yet gas prices are painfully high, the petrodollar is on thin ice, we are funding another war, and commodities are rising once again due to low interest rates. I don't think metals are currently in a bubble, just that it seems we are retracing our steps. If the cup and handle formations in the 70's are any indication then the current cup and handle formations are telling us that we have a long way to go.
IMO, you can't pay any mind to charts from the 70s as an indication as to that is going to happen now. The government and finance industry were at least operating with limits placed on them by law and the USA had a sound manufacturing base. All of that is gone now and instead we have a country being run on accounting fraud & delusion, debt being created at unprecedented levels, and declining real incomes. We are in uncharted territory. Where it goes today, next year, and 5 years from now is anyone's guess. It will break, the math says it has to. All that remains is the event that will push it over the cliff. I do agree with you that we are not in a gold bubble and I do think that it will continue to rise.
I remember the gold bubble from 1979/80. I remember evening news stories on TV showing lines of people in Manhattan waiting to get into coin shops to buy or sell gold. I remember several people at my workplace who put large amounts of money into gold. I remember my aunt who worked at a bank at the time telling stories about several folks who put so much gold bullion into their safe deposit boxes that it was difficult to pull it out of the wall and carry it. I remember listening to the business news on the radio [1010WINS in NYC] in the morning and the movement of gold prices and leading gold stocks was the lead story every day. It was a big deal at the time, much bigger than anything now which amounts to only a few cash for gold and TV offers. I don't think the rise in gold prices can be pegged to any one reason. The economy had been bad for awhile, interest rates and inflation were high, the loss in Viet Nam was still fresh in everyone's mind, and there was just a general lack of confidence.
Thank you cloudsweeper99. That is what I was looking for (well, personal anecdote is better than nothing.) I have never met any older professional investor, advisor or fund manager who then bought Gold or knew anyone who did (or, they won't admit that?) so I've always wondered WHO did? In recent years, there HAVE been many news stories of people lining up to SELL Gold. I don't think that's the right side of the equation, for a "Bubble" though.
Here are a few more contemporary accounts with details I consider noteworthy. The term "Bubble" appears occasionally but not so often as the Hunts action ( a cornered market) and the US government intervention (also not a 'free market action.') Fortunes were surely "won and lost" on the Spokane Stock Exchange, a tiny market that closed in 1991. It's not clear there was widespread instutional or retail participation in the 'Bubble' either ; the margin-called are unnamed, unnumbered. Nor is it obvious that 'economic activity was distorted' by spec; it certainly was by the COMEX/Government attack. There's also no mention of retail buyers, except that Tiffany customers STOPPED buying in mid-1979 and afterwards Kodak film prices had adjusted higher. Shouldn't a 'Popped Bubble' have witnessed LOWER prices than 1977/8? (That's true for tech stocks circa 2002 and RE in 2008.) Dips notwithstanding, Ag really didn't fall to 1977 levels until the late 80s. >> “Spokane Market Interest Fell with Silver” (Tri-City Herald, June 12, 1982 p.9) Spokane AP – The Spokane Stock Exchange is just a shadow of its former self these days. It doesn’t take an old timer to remember rollicking 1980, when Silver soared and fortunes were made and lost. Silver and metal prices are down today because of the recession and the ‘pop’ of the speculative bubble that saw silver prices climb from $6 a troy ounce in 1979 to a record $52.50 in January 1980. {…} Two years after the silver market’s dramatic crash, bullion prices stabilized at a mere one-seventh of their brief heady peak. After falling to a three year low of $6.965 a troy ounce last month, the metal climbed to the $7.50 level amid concerns over the Falkland Islands crisis. Like gold, silver prices gyrate during political and economic unrest. {…} In the silver boom of 1979 and early 1980, other factors were at work. Speculation by the Hunt brothers of Dallas and the investment firm of ContiCommodity Services, Inc. built up huge silver holdings and helped drive prices to record levels, according to a House Government Operations Committee report last December [1981] … But after silver hit its peak on Jan. 21, 1980, and new trading restrictions were imposed by the New York Commodity Exchange, prices plummeted to $10.80 a troy ounce two months later before leveling off. Meanwhile, inflation has been unwinding while interest rates remain high. Silver provides no interest payment to investors and high interest rates make purchases of silver on credit costly and less attractive than other investments. A large supply has been hovering over the market. The Hunt brothers’ holding total; 63 million ounces. And the federal General Services Administration was authorized last year to sell 105 million ounces over a three year period. << >>“Producers In Agony – Silver Mines Close But Film Prices Rise” (Toledo: The Blade, July 12, 1982 p.9) New York AP – The collapse of a speculative attempt to stockpile the metal, worldwide recession an unwinding of inflation, and persistently high interest rates have decimated silver prices and led to the closing of mines that produced nearly one-fourth of the nation’s silver last year. {…} Although pure silver is selling at 1978 prices, many products that use silver are not, especially film. Eastman Kodak Co. has steadily raised the list price of its most popular film for amateur photographers since October 1979, when silver was trading around $16 a troy ounce. Prices for Kodak’s most widely used x-ray film {…} have fluctuated with silver’s swings but are still 50 per cent above October, 1979 levels. {…} The photography industry [accounted for] 40 per cent of all industrial consumption last year. {…} Tiffany and Co., the exclusive Fifth Avenue jeweler, reports silverware business volume up about one and a half times [150%] this year from a year ago {…} Anthony Ostrom, president of Tiffany’s, says his factory is working overtime and is unable to keep up with demand. “When the price of silver got to $50 an ounce instead of the present $5, people were scared away{…} now people are interested in things they want to hand on to the next generation.” A popular five-piece sterling silver place setting, the Faneuil Pattern made by Tiffany, sold for $149.75 in February 1979 when silver was selling for about $7 an ounce. By March 1980 the price had soared to $508. But it has since declined to $195. {…}Among silver mines to shut down this year was Sunshine Mine, a 98-year old fixture at Kellogg Idaho, and the nation’s most productive silver mine. In 1981 output of 4.1million troy ounces represented over 10 per cent of the nation’s silver production. The Comstock Lode at Gold Hill, Nev. ended operations in June with the closing of its silver ore mill. Houston International Minerals Corp. said it could not earn money on the mine, which was considered the richest store of mineral wealth on Earth a century ago. {Also closed: the Bunker Hill, Star, Crescent and Consolidated Silver mines in ID; Taylor & Gooseberry Mines in NV; Pima, New Cornelia, Silver Bell, and Sacaton mines in AZ; Carr Fork Mine in UT; Sherman Mine in CO; Black Pine Mine in MT: output estimated at 97 mln ozt Ag and 24% of the national Ag ore production.} {…}New trading restriction were imposed on silver contracts on the New York Commodity Exchange, and as prices tumbled from $52.50 to $10.80 an ounce within 10 weeks, buyers were unable to meet calls for cash or collateral to back up loans for their silver purchases. Sell 63 Million Ounces The Hunts finally arranged financing and agreed to sell {…} their stockpile hanging over the market was just one factor that contributed to silver’s further collapse. Last year the Government announced a program to sell 105 million ounces of stockpiled silver over the next three years. But only about 2 million ounces of the more than 11 million ounces of silver offered for auction last fall was sold, as the General Services Administration rejected bids it considered too low. The average auction price was $9 an ounce. Dave Bond, a Sunshine Mining spokesman, blames the Government’s action for driving down silver prices further and contributing to the closing of the mine in Idaho’s “Silver Valley.” <<
I don't know if you can put a clock [or calendar] on the aftermath, and I wouldn't get hung up on the "bubble" term. It would probably improve accuracy if the term never existed. Much of what you read in the business press was written by journalism majors, not investment professionals, so don't expect accuracy in the use of the term. Overpriced markets eventually correct, and wildly overprice markets eventually correct a lot. A point-and-figure chart would show this better.
