For some history-conscious investors, fear of a repeat of the gold price crash of 1980 may be keeping them out of the gold market. However, according to many experts, the recent spike in gold prices does not resemble what happened 30 years ago.
Back in 1980, the price of gold spiked and reached a then-record price of $850 per ounce. Shortly thereafter, the price of gold sharply dipped and stayed between $300 and $400 for many years to come. Now gold has reached record heights again, recently trading at over $1,200 per ounce.
Many investors believe that gold may have reached its peak, and is soon to come back down to earth, but there are some indicators that show that economic conditions are far different than they were in 1980.
For starters, the recent increase in gold prices has been steady over a number of years. The increase in gold prices in 1980 was a quick, sudden upturn. The steady nature of the recent increase in gold prices suggests that it is a more sustainable and long-term price increase than the 1980 spike.
Also, in adjusted dollars, the $850 gold sold for in 1980 would be worth about $2,100 today. This means that gold still has a long way to go to reach the heights it did in 1980.
Also, the government was taking a number of actions that helped cause the gold crash in 1980 that they aren’t doing today. In fact, actions by the government may actually contribute to continued increases in gold prices. At the time gold hit its height in 1980, the nation was in the grip of crippling inflation. It was around then that the U.S. government was engaged in serious inflation-fighting efforts. When inflation is low, gold prices tend to drop. High inflation tends to drive the price up.
Inflation rates currently remain low, but may climb in the future. This would argue for further increases in the current price of gold.
The consensus among many investment analysts appears to be that gold will likely either retain its current value or continue to grow. It is likely that gold will reach a correction at some point in the future, but the current world economic situation is likely to become more uncertain, which will most probably result in more price growth for gold. Inflationary pressures generated by the U.S. government printing more money to pay for its stimulus projects will likely send the gold price further upward, and it may even reach $2,000 per ounce.
While the gold price won’t rise forever, according to many experts, there’s no reason to believe that a repeat of the 1980 spike and drop is in the cards.
