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Opinions/Editorials Title: Gold's Dramatic Rise and Fall in 1980s - Why It's Important First of all, I am not a gold bug and like Dennis Gartman, am not very comfortable when everyone becomes bullish on gold. Many analysts and journalists do all sorts of historical analysis for gold prices, looking back at the Q1 1980 high of $800 + (nominal price) and using this number in all sorts of statistical comparison. But what one has to be extremely careful about is the fact that this price was an extreme movement which didn't last for too long at that time. Gold moved above $700 and stayed there for just a couple of weeks before dropping into the $300-500 range (nominal) for most of the '80s. Here is some research I did to explore what caused Gold prices to rise (and subsequently) fall so dramatically in the first 3 months of 1980. It's important to know the history, to figure out if a similar situation could manifest sometime in the future and how to trade such an opportunity. --- Gold's dramatic rise and fall in 1980 --- 1. Conclusion: CPI and inflation fears set the general trend for gold prices (though they are not always correlated). But a dramatic spike and fall in gold prices were caused due to a combination of extreme geo-political events (Russian invasion of Afghanistan in Dec 1979, Iran hostage crisis) and strong and unconventional policy actions and market events (the Fed under Volcker increased fed funds rate from 13% to 20% for a short period in Q1 1980, and Hunt’s brothers silver market cornering failed due to their inability to meet a margin call during falling silver prices in Mar 1980, exacerbating the fall in precious metals). It is an interesting mix of these events which resulted in the roller coaster gold prices in 1980. Post Comment Private Reply Ignore Thread Top • Page Up • Full Thread • Page Down • Bottom/Latest #1. To: Badeye, A K A Stone, hondo68, Fred Mertz, Godwinson, go65, war, no gnu taxes, Skip Intro, ferret mike, jwpegler, brian s, mcgowanjm, Capitalist Eric, Mininggold (#0) 3.2 Silver Thursday and added selling pressure on precious metals: On March 27th 1980, the Hunt brothers couldn’t pay a $100 mn margin call on their positions and the panic spread to the futures market in general, fearing that there would be systemic impact by their default. To save the situation, a consortium of US banks (under supervision of Paul Volcker) provided a $1.1 billion line of credit to the brothers, which allowed them to survive the ordeal. Those who do not know history's mistakes are doomed to repeat them. Santayana
Maybe this time the sky is really falling - then again, maybe it's not. (Lots more to read at the link) "...all of the equations in neoclassical economics are rubbish. The differential equations describe nothing. Economics is not about mathematics, it is about the human being." Sandeep Jaitly #2. To: lucysmom (#1) Thanks for the ping.
#3. To: lucysmom, Fred Mertz, All (#1) I was watching the Tape back then...;} The Entire Impetus was on the Nixon Default, and soaring grain prices. The Great Grain Robbery of the Soviets. The Invasion of the Afghans BY the Soviets actually was the First step in Crushing infaltion. Carter announced the Grain Embargo to the USSR which crushed grain prices. My father lost his farm as a result. Gold was the FINAL effect. And I had a Money Market at 10% for proof. The 30 Year has been falling to ZERO, from front running Bonds by the TBTF Banksters, for 30 years.... Gold will be crushed. By January.
#4. To: mcgowanjm (#3) My father lost his farm as a result. Protect the speculator, crush the farmer - economic justice in America. "...all of the equations in neoclassical economics are rubbish. The differential equations describe nothing. Economics is not about mathematics, it is about the human being." Sandeep Jaitly #5. To: lucysmom (#4) Protect the speculator, crush the farmer - economic justice in America. And you can look for grain prices to be crushed shortly. Farmers don't ever get three years of 'good'(we can buy pickers, combines and tractors) years of pricing. This'll be over by January.
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