friend and renown gold historian Tim Green has been researching and writing
about gold for more than 40 years. His latest book, The Ages of Gold, is
the most comprehensive ever written on the history of mines, markets and the
price over 6,000 years. For those of us interested in gold today,
there’s much wisdom to be learned from the long view — as
you’ll discover from my recent conversation with Tim.
Nichols: What struck you most in researching the 6,000 year history of
Green: The stability of its price over long periods, often centuries,
which built up its reputation as a benchmark and safe haven.
Nichols: What’s the best example?
Green: The classic is the British gold standard which fixed the price
from 1717 to 1931, with only minor hiccups in the Napoleonic Wars and World
Nichols: What happened next?
Green: President Roosevelt set a new fixed price for gold of $35 per
ounce in 1934. That price endured until 1968.
Nichols: Why did that fail?
Green: During the 1960, as the United States became mired in the
Vietnam War, the dollar was under threat: a price set in 1934 no longer
made sense. Moreover, the growth of European and Asian economies
created a growing demand for gold in jewellery and industry. Gold was
no longer a monetary metal absorbed primarily by coin or central bank
Nichols: So how did the character of the gold market change?
Green: Essentially, the cornerstone became demand for fabrication in
jewellery and, increasingly, in electronics. Gold is a unique
metal; it does not corrode and is an excellent conductor of
electricity, making it vital in our age of high technology. Indeed,
through the ages, its versatility has made it valued in different ways at
Nichols: Did investors’ perception of gold change?
Green: Yes. Historically the prime reason for holding gold was
protection of your assets. Much of what we know of early gold coins
comes from Greek or Roman hoards buried when danger threatened. But
once the gold price could float, after 1968, it became a moving target and
the motive for buying was often profit, not protection.
Nichols: So how did that influence the price?
Green: We saw massive speculation in gold (and silver) in the inflationary
1970s, when gold and oil became favored hedges. That gave us the $800
gold price briefly in 1980. By then no one was sure where the price
should be, and we saw a bear market down to $250 by 1999. A generation
of investors almost deserted gold (though not gold shares, as mining boomed
after the $800 price).
Nichols: What brought recovery to the price?
Green: The 1999 Central Bank Agreement slowed a torrent of official
sales over several years, notably the Bank of England’s auctioning of
half of Britain’s gold reserves. This was a major step in
restoring market confidence. The tragedies of 9/11 and the Iraq war
also ushered in a new generation of investors worried their country, currency
or even bank might come under siege. The prosperity of this decade
(until 2007) also sustained jewelery and electronics demand. The price
cocktail was thus a good mix of ‘bread and butter’ demand with
investors adding some froth.
Nichols: So where do we go from here?
Green: The crucial factor in 2008 was that the price reached $1,000,
but did not overreach. A runaway price could, as in 1980, disillusion
investors with what its ballpark should be. Most important, gold has
established itself in a realistic trading range of $700-$1,000 and, in
currencies such as the euro and sterling, has risen as they depreciated.
Nichols: So gold has lived up to its historic role of safe haven?
Green: Yes, it is offering protection in an uneasy world. And we
see a generation of new buyers, especially in coins and small bars -
purchases they may hold for a long time. I am reminded of the 1930s,
another dangerous period politically and economically, when investors in
Europe, especially France, sought refuge for their savings in coins and bars,
which many held for three decades. When I first researched the market
in l966 many French people still kept that gold under the bed or buried in
the garden. Today, buyers may also husband their gold for some years -
keeping it off the market. That helps give the price a floor.
But, of course, the debate, as always, is how high it can go?
all the other articles published by Jeffrey Nichols
Managing Director of American Precious Metals Advisors, has been a leading
gold and precious metals economist for over 25 years. His clients have
included central banks, mining companies, national mints, investment funds,
trading firms, jewelry manufacturers and others with an interest in precious
metals markets. Please check his website and register to his free newsletter
by clicking here.