Precious Metals and Inflation

If one looks back over several decades, you will see several price fluctuations within precious metals, specifically with gold and silver. There are several reasons why prices will spike or plummet, including the relationship precious metals have with the value of the dollar, economic conditions and more. We will look at several instances of significant price fluctuations of gold and silver and provide insight as to what the causes were.

1974 Price Spike of Gold and Silver

When the U.S. Dollar loses value, the price of gold and silver tends to fluctuate. In 1974, after two significant devaluations of the U.S. Dollar, in late 1971 and early 1973, the value of gold and silver increased significantly. In addition to the devaluation of the dollar, OPEC embargoed oil exports to the United States, helping to increase inflation. It was in this time that precious metals offered unique value..

1980 Impact of Inflation

From the years 1978 to 1980, we saw the U.S. Dollar involved in the quadrupling of oil prices. In addition, gold and silver saw very significant spikes in value, with gold going from $200 oz in 1978 to $850 oz in 1980. Similarly, silver value grew from $5 oz in 1978 to about $50 oz in 1980.

The reason for the spike, unlike the false understanding that just a few investors cornered the silver market and drove the price up, was more likely a combination of fear, greed, political instability and high inflation. For those old enough to remember, the Federal Reserve Prime Rate reached a record 21.5% by 1980 in an attempt to curb rampant inflation. With precious metals acting as a hedge against inflation, it should be on wonder that gold and silver spiked significantly during this time.

2011 Gold and Silver Spike

Beginning with the 2008 global financial crisis and the intense demand for U.S. Dollars, the price of gold and silver plummeted. By 2011, both gold and silver spot prices rallied and multiplied, sending precious metal buyers on a buying spree, purchasing almost three times as much bullion from 2008 to 2015 as they did in the 7 years prior to 2008. By the fall of 2011, gold reached a record U.S. Dollar spot price of about $1,900 oz. and silver saw a significant increase as well. Both can be attributed to the reversal of the U.S. Dollar’s value after 2009 and well into 2011.

Based on the rise and fall of gold and silver over the last several decades, it’s worth reminding collectors to keep an eye on global economic cycles.

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