How the Gold Market Resembles the 1970s

July 20th, 2016 by

The world is filled with crises, both economic, geopolitical, and humanitarian. Central banks are at the center of the financial mess. The general public is outraged with its leaders all around the world.

In many ways, there are parallels between our current situation and the problems that plagued the 1970s.

History Repeats Itself?

The comparison between today’s gold market and what we saw happen during the 1970s is intriguing. Of course, whatever similarities are outlined here by no means proves that a repeat performance is inevitable. It’s just useful to look back at how the current economic environment resembles something that has already been experienced. After all, markets do tend to follow cyclical patterns—just not 100% of the time, it must be acknowledged.

gold in 1970s

Image courtesy of Market Oracle (U.K.)

First, take a look at the chart to the right. It shows how the price of gold rapidly ascended from less than $50/oz in 1970 to a high of nearly $900/oz by early 1980.

During this 1970s, the world—and especially the United States—was mired in an economic quagmire: an oil crisis; violent conflicts around the world; and social unrest in American cities, among other problems.

While these issues will never perfectly map onto current events, there are important parallels between that tumultuous decade and today’s world that are worth examining.

Key Parallels

One of the most striking similarities between the 1970s and the second decade of the 21st century is the outsized role that central banks are playing in the economy. Like today, the Federal Reserve of the 1970s was engaged in an enormous intervention in the markets by manipulating interest rates and keeping the printing presses busy. Once again, reckless money-printing and unconventional interest-rate policy are at the heart of the current Fed’s strategy.

Kim Iskyan of The Street explains, “Right now, we are again in the midst of a grand central bank experiment with the global money supply. And it again doesn’t seem to be working.”

Ineffective central bank policy is invariably a catalyst for a surge in gold prices.

world-gold-257x300Second of all, much like the ’70s, the public is enduring an utter collapse in confidence in its governing authorities. This has been coupled with widespread social unrest and the rise of populist political figures all over the Western world. In the U.S., this has been demonstrated by anti-establishment insurgencies in both the Democratic and Republican parties. Above all, when the future is particularly uncertain, the gold market is the beneficiary.

Although it may be the least compelling parallel between then and now, it’s worth noting that gold is following a similar price pattern that it exhibited during the early 1970s. This year’s 25% surge in gold prices may just be the beginning: several gold miners have seen their share prices double (gain 100%) over the first half of 2016, and these producers firmly believe that the overall trend for the market continues to be up.

In any event, the global economic conditions continue to favor gold, though this in no way guarantees that prices will follow the exact same stratospheric path that was seen in the 1970s.

 

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.