InvestorQ : Why was the gold movement phase of 1971 to 1980 extremely important?
Arya Nanda made post

Why was the gold movement phase of 1971 to 1980 extremely important?

Answer
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Deepa Salunkhe answered.
1 year ago


This was the golden period of gold. Till 1971 the price of dollar and gold were pegged to each other. This was an agreement under the Bretton Woods Arrangement of 1944. By 1971, the US realized that it was not feasible for the US to continue with the gold standard. The Bretton Woods standard broke off in 1971 and from then on currencies have been typically pegged to a basket of hard currencies. Interestingly, as central banks did not need to hold substantial gold, the idea of gold ETFs took off in a big way. During this 9 year period, the price of gold spurted from $42 / troy oz to $800 / troy oz, a stunning return of 1900% in 9 years.

There were many reasons for this phenomenon. The period of 1971-1980 was marked by severe global economic and political strife. Many investors preferred the safety and solidity of gold in these volatile circumstances. The decade started off with the Black September and then the famed oil embargo of 1973 which resulted in a sharp hike in crude prices. A spurt in oil prices led to a weak dollar and consequently strong gold prices. This period saw the peaking of the Cold War between US and USSR as well as geopolitical events like the Iran-Iraq war, Arab-Israel war and the Soviet Occupation of Afghanistan. This geopolitical strife created a vicious cycle of debt, deficits and an increase in money supply. As much as it eroded the confidence in the dollar, it made gold the priced currency.