March 11, 2014
Perhaps there is not a more closely watched barometer in the coin business than the price of gold. Even though relatively few rare coins are dependent on their bullion gold value, much like the Dow Jones Industrial average has become an indicator of the financial health of the nation, the price of gold has come to reflect the pulse of the numismatic industry.
Most gold history charts begin in the early 1970s, when the U.S. price of gold was allowed to float on the world markets. However charts measured in actual dollars are somewhat misleading, because over several decades the buying power of the U.S. dollar has eroded significantly. In fact, according to the CPI Inflation Calculator (http://data.bls.gov) $20 in 1914 would have the buying power of $467.83 today, an increase of slightly more than 23 times.
To truly measure the value of gold over an extended period, it is essential to use constant, or inflation-adjusted dollars as a yardstick. Viewed in that light, the long-term price history of gold takes on a new and interesting shape. As seen on the accompanying chart, (http://en.wikipedia.org/wiki/File:Gold-nominal-constant-usd.svg) the historical "worth" of gold under the Bretton Woods (Gold Standard) system in use through 1974 varied between about $250 and $500 per ounce.
An increase is seen in 1933 when FDR took the United States off the gold standard for circulating currency. In August 1971, President Nixon ended the convertibility of gold into dollars at a fixed price. The official U.S. "price" of around drifted upward later that year to around $38, and then to $42 by 1973. But by that point, market forces were pushing the price well above that level, and by 1974, the dollar was "floating" against the value of gold.
Throughout the late 1970s, the gold price in constant 2013 dollars fluctuated between $500 and $1000, and by the end of the decade, with inflation and interest rates running rampant, the price spiked to around $2,500 in inflation-adjusted dollars. In the ensuing 22 years, the price slid back to around $350 (in 2013 dollars – $250 or so in actual dollars.) Then in 2002, the long march upward began, peaking at around $1900 in the early fall of 2011.
So what's the takeaway from all this? While the price of gold remains relatively high, the 1980 peak was higher in constant 2013 dollars, and the value of gold throughout the first two thirds of the 20th century averaged in the $300 to $400 per ounce range – in 2013 dollars.
Next time, we'll take a look at the very long term price history of gold - dating back about 800 years!