Gold has often served as a barometer for the economy and for the confidence the public places in the currency. Gold prices tend to remain stable when consumers trust the dollar’s value. However, erosion of that trust could send investors fleeing to gold, much like what happened in the 1970s after President Richard Nixon ended convertibility between gold and the U.S. dollar.
In a time where federal spending and borrowing have reached record levels, many wonder if this spending, often called “stimulus,” will erode the dollar’s value and send consumers back into the yellow metal. Let’s take a closer look at gold over the last 10 years to gain a better understanding of what the precious metal means to us today.
Understanding Gold
Myths about investing in gold abound. However, people turn to gold for a variety of reasons, financial and otherwise. Attributes such as malleability, resistance to corrosion, and ability to conduct electricity attract many to the metal. However, limited supply and availability tend to bolster its appeal as a form of money.
The Federal Reserve can print more dollars, but no entity can “print” gold. Barrick Gold Corp., one of the largest gold producers in the world, spent $1,065 per ounce to mine gold in 2020. While this makes mining profitable at the current price, this takes a considerably larger effort than increasing the supply of paper or digital dollars.
As for how to invest in gold, financial author Jim Rickards recommends a 10% allocation, and many other advisors agree. This is likely due to poor long-term returns.
Investors should remember that gold does not pay interest. Moreover, it has underperformed stocks over time. Today’s price of $1,740 per ounce amounts to a gain of only 22% over 10 years. Over the same period, the S&P 500 has nearly tripled. Hence, investing in gold has generally not served investors well.
Gold Through History
Nonetheless, the reverence for gold goes back to the beginning of civilization. The ancient Egyptians smelted it as far back as 3600 B.C. and began using it for jewelry in 2600 B.C. Ancient civilizations in Persia, China and many other places revered and treasured this precious metal.
Use as money goes back as far as ancient Rome, but most societies treated it as money indirectly. In the 18th, 19th and much of the 20th century, powerful central banks such as the Bank of England established trust in their respective currencies by guaranteeing convertibility to a specified amount of gold per unit. The Federal Reserve maintained a value of $35 per ounce of gold from the 1930s until 1971.
Removing the gold/dollar peg sent gold as high as $850 per ounce in 1981 as inflation and interest rates reached double-digit levels. However, the Fed moved to counter inflation in the early 1980s. Eventually, gold settled in the $300-$400 per ounce range and stayed there for the remainder of the 20th century.
Gold 10 Years Ago
On April 1, 2011, gold closed at $1,418 per ounce. Nonetheless, the price of gold has experienced significant volatility during that time. In 2011, it experienced an uptrend that began at approximately $750 per ounce at the height of the financial crisis in 2008.
As the financial crisis abated, concerns about government stimulus and the national debt would take the price of gold to approximately $1,900 per ounce by the fall of 2011.
However, as concerns abated, investors stopped flocking to gold, and the bull market ended. By 2013, gold prices had fallen to the $1,300 per ounce level. Gold did not see another bull market for six years after that decline.
What Happened to Gold in 2016?
A steady decline in gold prices continued until 2016. By the beginning of the year, gold traded as low as the $1,050 per ounce range. Nonetheless, traders still viewed gold as a safe haven in times of crisis, and two surprising votes served as a reminder.
The first occurred with the Brexit vote on June 23, 2016. Most traders believed the British people would vote to remain in the European Union. Nonetheless, British voters shocked the world when they voted to leave. Gold had closed at about $1,262 per ounce on the day of the vote. The announcement would take gold higher by nearly $100 per ounce on an intraday level before closing at $1,315 per ounce the next day.
Gold also experienced a less extreme but accelerated trend down following Donald Trump’s election on Nov. 8 of that year. Gold saw a near-term peak the weekend before the election at just above $1,300 per ounce. By the end of the year, the price would fall steadily for the rest of the year and would end 2016 at about $1,160 per ounce.
The Current Bull Market
Gold prices remained rangebound for most of the Trump presidency. That changed in the summer of 2019 when gold climbed meaningfully above the $1,300 per ounce mark. At the time, worries about an interest rate cut and the ongoing trade war with China sent investors into the precious metal.
These worries also took a backseat when the COVID-19 pandemic ground the world economy to a halt in the spring of 2020. Governments across the world responded with a stimulus, and worries about the world’s currency left gold inching toward record levels. At that time, gold reached almost $2,100 per ounce.
Where Gold Goes From Here
For now, worries have abated, and gold has again fallen below $1,800 per ounce. In that time, infection rates have fallen in the U.S. as it vaccinates its population.
Nonetheless, the ongoing stimulus has renewed concerns about the dollar’s value and rising government debt levels. Moreover, many parts of the world that have not received the vaccine have seen a resurgence in COVID-19 cases. Thus, more governments could add additional stimulus to keep their economies afloat as they return to lockdowns. This could again turn investors to gold as they seek a safe haven.
Takeaway
Americans need to think of gold as a shelter rather than an investment. While inflation remains an ongoing issue, investors need to remember that gold typically does not outperform the market. However, by keeping some of your portfolio in gold, you can grow your money safely in times of high uncertainty and volatility.
FAQ
What is the price of gold over the last 10 years?
It has ranged from $1,049.41 to $2,067.16 per ounce and has produced a 22% return in the last 10 years.
What is the record price for gold?
Gold reached a high of $2,067.16 per ounce on Aug. 7, 2020.
Will gold prices fall in 2021?
Nobody knows, though they have fallen by about 8% this year as of the time of this writing.
Data is accurate as of March 23, 2021, and is subject to change.